The Budget proposes an unexpected hike in capital gains tax for equity investments. While the Sensex tumbled 1.6% initially, it quickly recovered to end the day marginally lower. Ashish Gupta, chief investment officer, Axis AMC, tells Vivek Kumar M that he was surprised that markets did not react more negatively, and expects further increase in capital gains tax. Excerpts:
The government has increased both LTCG/STCG tax. Do you expect further hikes?
I am surprised that markets have not reacted more negatively to the increase in capital gains tax. My expectation is that LTCG will go up further. The fact that it is at 12.5% suggests that it is an open item.
My guess would be that 10% to 12.5% is the first step. Next year, it will be 15%. For anyone investing now into equity or mutual funds should be expecting the rate to be at 15%.
What is your view on the STT increase on F&O?
I am concerned about what has been happening in the F&O, particularly around expiry day index option trading. Increase in STT is a good signalling tool. But I don’t believe by the step alone will be adequate to stem the frenzy in trading that goes on around the expiry day. But the good thing is that the regulators have taken cognizance of it.
Markets have bounced back both after election results and Budget day. What is your assessment?
I think a sense of complacency has creeped in because returns in the last three years were very strong. As we say in all our disclaimers, past returns are not an indication of future performance. People should pay more attention to that. We have to be quite clear that market will always have cycles. No market, over longer term, can exist without cycles. While longer-term trend may be upwards, it will still reach there with cycles. It will never be a straight line.
Now that the biggest events (elections and Budget) are behind us, what is your view on markets for the rest of FY25?
Now, the markets will move back to the basics, which is looking at companies and their earnings. But there is still one big event – the US elections. We need to watch out for that because global trade wars are continuing to escalate. From the longer-term perspective, we expect the market returns to be slightly better than nominal GDP.
What is your assessment of Q1 earnings that we have seen so far?
It is still early, but not great so far. In the IT sector, where expectations were very low, earnings did not disappoint. But many banks have disappointed on the growth, margins and even asset quality fronts. We will have a better picture in next few weeks.
In the past few years, the government has taken the lead in capex while private companies have been laggards. Do you see things changing?
We are seeing signs of private capex picking up. We are at a point where the increase in private capex is going to be larger than the rise in government capex. If you aggregate capex plans of top listed companies this year, it is larger than the increase in the government capex.
We are seeing this in multiple sectors where there is either capacity issue or the industry is going through some form of transition. Some of these industries include power, energy, transmission, railway, defense and real estate.
Consumption, especially rural, has been worrying. Do you expect it to pick up?
We are seeing a marginal pick-up. Compared to last year, we are now slightly more optimistic on consumption. The consumption cycle has been down for three-four years. We all know the structural story of consumption in India is good. So, cyclically, we are due for an upcycle in consumption. There are some measures announced in the Budget as well.
