Budget 2018: How will the stock markets react to the Budget 2018? It’s a question concerning all at present. If budget 2017 is taken as a precedent, Sensex may appreciate. Historically, benchmark indices have plunged eight out of ten times just ahead of the budget month. But, this time, the scenario is very different. The markets are at an all-time high with Sensex over 35,500-level and Nifty touching 11,000-mark. It shows clearly that any room for the further rise is narrow. However, it’s still to be seen what happens on the D-day. Just after Budget 2017 was presented in the Parliament, benchmark indices surged. The budget 2017 sought to boost infrastructure with record allocation and augment rural spending to revive private consumption, sending NSE Nifty above 8,700 points for the first time since October 24, 2017. At the same time, Finance Minister Arun Jaitley avoided spooking the markets, as he did not tighten the long-term capital gains tax requirements against expectations; made it easier for FDI (foreign direct investments) into the country; and gave relief to foreign portfolio investors (FPIs) from taxation on indirect transfers.Will Budget 2018 react similarly, is still to be seen.
Here’s how and why the markets moved after Budget 2017 was presented.
Flat and up
BSE Sensex and NSE Nifty, which were largely flat during the entire duration of the budget speech while waiting to see if Finance Minister Arun Jaitley announces more populist measures and risks fiscal prudence, soared immediately on the completion of the speech as it missed on acting of any of the anticipated concerns. BSE Sensex ended up 1.76% at 28,141.64 points, while NSE Nifty ended up 1.81% at 8,716.4 points. “This was the least volatile budget that I have seen in 30 years,” veteran investor and BSE member Ramesh Damani said in a chat on CNBC TV18. Damani said the focus of the markets will now shift to the US policies, and markets will look towards global developments.
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Rural agriculture, infrastructure boost
The Budget 2017-18, though not being seen as populist, proposed heavy public spending towards boosting rural agriculture sector. The government chose to concentrate on augmenting expenditures on the sectors that have been most successful and yielded results over the past few years, Jaitley said in a post-budget discussion. Arun Jaitley fixed agricultural credit target for 2017-18 at Rs 10 lakh crore; allocated Rs 40,000 crore to long-term irrigation fund; and kept Rs 8,000 crore for milk processing over three years. He also raised the farm insurance to now cover 40% of the net sown area, up from 30% in the budget. The measures are expected to help the government move closer to its objective of doubling the farm income by the year 2022. In his second area of concentration, Jaitley allocated a record Rs 3.96 lakh crore to the infrastructure sector, including Rs 2.41 lakh crore for transportation alone. He proposed Rs 640 billion investments in national and state highways in the next financial year. Stocks from most consumer-centric sectors rose on the hopes of the boost in rural incomes, while capital goods and infrastructure shares also surged. BSE Auto index ended up 3.46%; BSE FMCG up 2.79%; and BSE Consumer Durables up 0.91%. BSE Capital Goods ended up 2.18%. Bank Nifty rose 2.59% and ended at 20,020.6 points, topping 20,000 for the first time since November 11, as recapitalisation worth Rs 10,000 crore and incentives for housing sector improved prospects in Budget 2017.
Further, other measures also sent positive signals to the market participants. The Budget 2017 proposed to reduce the holding period for property for claiming long-term capital gains exemption to two years from three years now, making more money available at the hands of investors to put into other financial securities. Jaitley also clarified that the Foreign Portfolio Investors will be exempt from taxation on indirect transfers. “Indirect transfer provision shall not apply in the case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India,” Jaitley said. Moreover, also made it easier for Foreign Direct Investments to flow into the country with proposed abolition of the Foreign Investment Promotion Board. He also said that further liberalisation of the FDI policy is under consideration, sending signals of increasing ease of investing into India.