It’s really no surprise that markets reacted the way they did on Feb 1st with a 1000 point cut and will most likely sell off more on Monday.
Let me cut to the chase and tell you what’s the good, the bad and the ugly in the FM’s wish doc :
The good news is that if you are a farmer or own an Agri business Modi Government has your back. And the next time a bank fails; depositors get Rs 5 lacs of insurance back vs. Rs 1 lac
The bad- Tax and DDT cuts mean that you end up paying more tax under the new regime which is marginally beneficial if you do not claim deduction /exemptions under the old tax regime.. The important tax breaks that will not be available under the new tax regime include Section 80C (Investments in PF, NPS, Life insurance premium etc.), Section 80D (medical insurance premium), tax breaks on HRA (House Rent Allowance). LTA, Standard deduction of Rs 50, 000, and on interest paid on housing loan. Tax breaks for the disabled and for charitable donations will also go. If you are claiming deductions of up to Rs 1.25 lacs , you are better of sticking to the old tax slabs.
Removal of dividend distribution tax (DDT), with dividend now taxable in the hands of recipients at their applicable income tax rate, will adversely impact individuals with high taxable income- HNI’s will now pay 30% tax, excluding surcharge and cess. However, abolition of DDT was being demanded since long by the FPIs due to non-availability of credit of DDT in their home jurisdiction. Hence, this could be FII positive but the impact may be neutralized by no relief on the long term capital gains tax.
Cumulative ceiling by employer for provident fund, NPS and superannuation fund limited to Rs 7.5 lac annually. Any contribution by employer above this to be considered as perquisite and will be taxed .Also, any annual accretion by way of interest, dividend or other amount of similar nature will be treated as a perk and taxed.
The ugly -selling the last of the Crown Jewels -LIC IPO ,taxing NRI’s , 5% tax on overseas LRS remittance above 7.5 lacs + slippage in fiscal deficit target has been moved so far out to 3.6% that there’s almost a zero chance of reaching it. Not to mention an ambitious disinvestment target Rs 2.1 lac crore of for FY21E.
Measures to attract foreign capital, undertake disinvestment (including LIC stake sale via an IPO), and offer relief to MSMEs are some of the green shoots. It remains to be seen if such announcements are backed by an equally robust execution. That said there is no meaningful stimulus to infrastructure, manufacturing, real estate and rural spends. Issues pertaining to unemployment and weakness in the financial system have not been addressed either. No elaboration on power reforms and lack of details in the Budget on privatization raises many questions.
The provisions of the Union Budget will not succeed in reviving the much needed growth that much is clear. However International rating agencies may form an opinion on the rating of India based on their perception about how long the growth slowdown will continue. The biggest risk is still the Banking and financial sector currently hamstrung by the rising risk of a further deterioration in the asset quality cycle. The budget does not directly address these risks for either banking or the non-bank financial companies.
Yes, markets will lose some more ground and then overcome the effect of the Budget and corona virus in the next few days and eventually, we may even see a small rebound in the markets.
So dear investor, do you go all in and buy the dip or stop or continue to SIP? Unfortunately, when markets tank, retail investors usually end up making the wrong choices. Some stop their SIPs in equity funds while others redeem their investments to avoid further losses. Keep in mind that volatility is inherent to equities. It is practically impossible to predict how markets will behave on a certain day.
Do not panic. One should invest in equities with a long-term time horizon – one-year and anything shorter is the wrong way to go about it.
About the Author:
Rajiv Goel – CEO Bombay Capital Services, bum in 1968, in Mumbai, in a family of traditional textile traders studied in a local Convent school named “Campion” and completed his Commerce graduation from H R College Initially, first 5 — 6 years he was a pad of the family business following which he started taking interest in the stock markets which were still in a nascent stage in India.
Even before he completed his graduation, he started his own Sub-Oolong business in the Bombay Stock Exchange using his street smart knowledge acquired through venous sources He learnt the ground rules of the business in the era of Harshad Mehta and Ketan Parekh.
In 1995, he established a proprietary company called “Bombay Capital Services “, a financial advisory firm which advises dents on the fundamentals of small savings. These include sublets like PPF, Gold, Equity, Mutual Funds and similar asset Classes.
Based at New Marine Lines, the company has a ten minute proximity from the Churchgate and V.T stations making it convenient for the client to access. Over the past 20 years, the company caters to more than 1000 dents including HNI’s, Corporates/ Bank, Retail Investors. The company has a dedicated team and research desk which advises clients on Equities Commodities, Forex, Mutual Funds and Insurance. Presently, it has an office in Mumbai and Delhi and plan to open up branches shortly in Kolkatta and Chennai.