Budget 2018: Even as the Sensex and Nifty scale new peaks in quick succession, with the 30-share barometer breaching the 36,000 mark for the first time ever, and the broader 50-share Nifty racing past 11,000, the equity markets will keenly watch out for cues from Union Budget 2018 which is to be presented on February 1 by Finance Minister Arun Jaitley. If history is anything to go by, benchmark indices have plunged eight out of ten times just ahead of the budget month. But, this time, the scenario is very different. Sharing his views ahead of Budget 2018, Inderjeet Bhatia of Macquarie Securities says that Finance Minister Arun Jaitley would have to balance between pushing productive investments like infrastructure and pushing more on either the rural employment guarantee programme or programmes like rural and urban housing projects. We take a look at what equity markets expect out of Budget 2018.
Controlling Fiscal Deficit
After the government on announced its decision to cut additional borrowing requirement to Rs 20,000 crore from Rs 50,000 crore earlier, global credit rating agency Moody’s Investor Service says that the change does not impact its fiscal deficit estimate on India. The reduction will not really impact our fiscal deficit target estimate for India and hence is not too relevant to our sovereign rating,” Marie Diron, Senior Vice President, Sovereign Risk Group at Moody’s Investors Service told CNBC TV18. “In the current fiscal year, the government has already touched 112% of its fiscal deficit targets in the first 8 months itself. While the fiscal deficit target for the year is 3.2%, it has kept a leeway of 50 basis points. As long the level of 3.7% is not breached, there should not be a problem,” Angel Broking said in a recent note.
Watch Video: FM Arun Jaitley May Tweak Income Tax Basic Exemption Limit
Boost to Infrastructure and rural spending
Top market voices and analysts alike expect that Finance Minister Arun Jaitley will give a big boost to rural and infrastructure spending in the upcoming Union Budget 2018. “Rural spending as a percentage of GDP has come down below 1% from 1.4% in last 5 years. We could see a boost in rural spending. Push to NREGA, Rural Road, Rural Housing,” Asif Iqbal, Research Head (Equities), Escorts Securities told FE Online in an interview. “I still believe spending in the rural areas would be the way forward for the government. I would also expect that other than outside the budget, there could be slightly higher increases in MSP which has been given in the last three-four years in a way to alleviate the rural distress that we are seeing on the ground right now,” Inderjeet Singh Bhatia of Macquarie told in a recent interview to ET Now.
LTCG on equities
Amid talks of the government looking to tweak rules of capital gains tax on equity in the upcoming Union Budget 2018, market experts say that the move may be viewed negatively by the market. “The market also hopes that the LTCG on equities is not re-introduced. Tax free LTCG has been a key driver for investments in equities. However, an increase in the time limit for LTCG from 1 year to 3 years looks possible to foster a longer term approach to equities,” Angel Broking said. “Maybe time has come to look at whether the one year period should be increased to two years. This means only after two years you would consider long term,” Uday Kotak, Executive Vice Chairman and MD of Kotak Mahindra Bank, told The Indian Express. Gains from equity holdings for short term (less than a year) are presently taxed at 15 per cent. The gains made from stock market transactions after one year are currently exempt.