THE Union Budget 2017 can well be viewed as a positive budget for the markets for two simple reasons. One, it intends to give immense boost to the economy by propping up the much needed rural, agriculture and infrastructure sectors including giving a major boost to the housing sector by according small and affordable housing infrastructure status. Two, as against the projections made by most market pundits about the budget not likely to meet market expectations and most of the positives expected from the budget already being discounted; it has turned out to be an anti climax. The market analysts forgot that there were huge fears also built up from the budget with regard to long-term capital gains being brought under the tax net or at least the duration for its eligibility to be increased, dividend likely to be taxed in the hands of individuals receiving the same, and so on. No such thing happened; rather, the FM gave a very big relief to the real estate sector by reducing the period of eligibility for long-term capital gain tax on immovable property from three years to two years as also by relaxing deemed rental taxation for one year for builders holding stock in trade.
Though there were some disappointments on the personal income tax front and the reduction in corporate tax rate not getting extended to most of the listed companies due to an imposition of a turnover limit up to Rs. 50 cr, but they did not dismantle the ongoing rally in the market. The FM preferred to keep indirect taxes untouched but was conspicuous by not making any worthwhile provision on transfers likely to be made due to losses that state governments will incur as a result of shifting to the GST. However, by keeping the fiscal deficit target at 3.2 per cent of GDP for FY2017-18, he seems to have kept enough room for such contingencies and at the same time has given a big push to the spending so as to prop up demand that was seen to be slackening post demonetisation.
The FM has done a fine balancing act by proposing an increase in capital expenditure outlay by 25.4 per cent while reducing borrowing from Rs. 4.25 lakh crore to Rs. 3.48 lakh crore. The move should provide a growth impetus to the economy without triggering inflation and higher rates and will not crowd out private investment at the cost of borrowings by the government. The onus now lies with the RBI to go in for early rate cuts. The proposal to exempt FPIs from indirect transfer provision and allocating Rs. 10,000 crore for recapitalisation of banks are other notable positives from the market point of view.
So, happy times are likely to continue in the market. Investors should take a long-term view of the market. Despite the market not looking cheap at the moment, there are stocks that are still available at compelling valuations. If one can identify them, one can expect decent returns over a period of 2-3 years. The sectors on the upthrust post the budget have become so obvious that they need no mention.
VOL. 10 | ISSUE 11| FEB 2017