Union Budget 2019: Following the speech by Nirmala Sitharaman this afternoon, the headline indices reacted nagatively, as the Sensex fell nearly 600 points from the day’s high while the Nifty plunged below the 11,800-mark. Taking stock of the negative reaction of Sensex and Nifty, experts note that a few announcements such as increasing of income tax for HNIs, no mention of fiscal deficit, and a proposal to increase the public shareholding to 35% has not gone down well with the investors. Notably, the finance minister has proposed to increase the surcharge for those earning Rs 2-5 crore to 3 per cent and for those earnings above Rs 5 crore to 7 per cent. “The HNI’s will now pay more than 38% income tax if they’re earning between 2-5 crore, and 42% tax if the income is above Rs 5 crore. That’s a huge jump–a jump of 20% for those earning above 5 crore. Of course,” Ashok Wadhwa of Ambit Capital explained in an interview to CNBC TV18.
According to technical analyst Milan Vaishnav, the markets reaction to the Budget is on anticipated lines. “No major suspense was anyway expected from this Budget as much was already presented in February when the customary Vote-of-Account was almost a full-fledged one,” he told Finaical Express Online. The investors could have expected some spark in the markets had the FM tinkered with lowering of the Short and Long Term Capital Gains tax on equities or a reduction on the STT front, he said. “That did not come through as well. Apart from this, there are no direct measures that were announced to counter the impending slowdown. Further, we did not hear anything about the Fiscal Deficit front also,” he noted.
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According to Nilesh Shah of Envision Capital, the budget doesn’t do much to take the growth trajectory higher. However, he the budget has tried to addrress the short-term challenges, he reckons. “Clearly the challenge for the markets will be the higher tax rates,” he said. In an interview to ET Now, Nilesh Shah, MD and CEO, Envision Capital said that while the increase in public shareholding limit to 35% from 25% would that lead to higher supply of paper, whether it can it get abosorbed, remains to be seen. “There are a lot of smallcap and midcap firms where promoters own more than 65%. The list of losers today, a lot of stocks include names where promoters hold more than 70%. Therefore, we need to understand the environment, and clearly there is no appetite for midcap and smallcap stocks, and this will create some more pressure,” he told the channel.
According to Milan Vaishnav, the tax incidence of the taxpayers in the high-income bracket was done offset the likely revenue loss from a few of the other announcements. “We had expected this as the government has a strong mandate in its hand and was likely to take such measures which may pinch in the near term but may be good in the longer term. So, with no expected goodies coming in Markets way, even though it was very likely to happen this way, the Markets have reacted negatively to the Budged,” Milan Vaishnav, Consulting Technical Analyst, Gemstone Equity Research & Advisory Services said.