Market reaction on the budget

The 2016-17 Union Budget has a clear thrust for the rural economy while taxing urban and the top of the pyramid consumption. It carries the highest ever allocation to MNREGA – remember, MNREGA expenditure had been coming down in the last 3 years adding to the rural stress. Allocation to the agriculture and allied sector has been increased but the subsidy route has been avoided (efficient spending) while thrust is on job creation. The good thing is that the government is sticking to its initial disposition of clampdown on black money, subsidy rationalization and push for job creation.  Various estimates have put the black economy at par with and even higher than the real economy. The thrust on bringing back black money into productive use in the real economy can rejuvenate the economy and put us back in growth trajectory. This budget has a clear emphasis on making taxes more efficient, reduce opaqueness in tax dispute handling .While the budget is structurally positive in medium term, no room to spend and a tight fiscal stance could act as a dampener for capital markets. As has been in the past, execution remains the key.â€?

Atul Kumar, Head-Equity Funds, Quantum AMC

Largely, the budget addresses rural and agriculture sector. This was probably expected, given the higher stress that farmers are facing. They have also announced a number social schemes such as health insurance etc for lower income  segment as a result there can be higher consumption  from rural areas and this could correct the lopsided growth that the economy is witnessing.

One positive point has been of fiscal deficit target; government will adhere to 3.5 % fiscal deficit in spite of various challenges such as 7th Pay Commission, One Rank One Pension (OROP).

A number of measures has been announced which will lessen tax  hassles and also  end to  retrospective taxes. Measures around these are welcome as businesses face a number of problems with tax authorities. There has not been much in the budget for corporate India. Even on the infra spending the numbers are not very high.

Anup Bagchi, MD&CEO, ICICI Securities

The budget emphasizes the “Growth Grid (Governance, Reform, Social Infrastructure & Investments, Fiscal Discipline)� using nine distinct pillars to transform India. Overall a good budget which focused on immediate easing of agricultural stress and encouraging long term economic growth.

Dinesh Thakkar, CMD – Angel Broking

In the backdrop of a challenging global economic environment, we believe the Finance Minister’s main focus has been to reiterate India’s commitment to stable economic and fiscal policies. Foreign investors are likely to derive significant confidence from the fact that the fiscal deficit is likely to be reigned in at 3.5%, and that India’s growth is not dependent on short-sighted fiscal over-spending. The restrained budget also means that interest rates are likely to come down further in the coming weeks. Moreover, market worries regarding long-term capital gains tax proved unfounded too. The government’s focus on plan expenditure and infrastructure continued, as evidenced by the significant increase expected in irrigation coverage acreage, as well as focus on roads and ports. Overall, the budget accommodates Pay Commission requirements and higher plan expenditure, without breaching the deficit and achieves this with credible numbers, which would be the key positive highlights.

Satish Menon, Executive Director, Geojit BNP Paribas Financial Services Ltd

Budget’s prime emphasis is on the rural economy / population and also on infrastructure spending. Both of these could go a long way in increasing the GDP of India with total inclusion. Adherence to 3.9 % Fiscal deficit and 3.5 % for next year would bring comfort to FII.  The key to the budget is its implementation.

No bad news on the LTGC was good news to the stock markets. On the negative side, expected reduction in corporate tax rates have not yet materialised.

Sunil Godhwani, Chairman & MD, Religare Enterprises

Overall the budget is a good and well balanced one. The narrative is structured and elaborates and has attempted to do everything by ticking almost all the right boxes. It balances economic growth and fiscal consolidation concerns around inflation, and hence sustainability of the economic growth path. The other big pluses would be items which were expected but did not get announced i.e. no increase in service tax and no increase in the holding period for long term capital gains.

Kaushlendra Singh Sengar, Founder & CEO, Advisorymandi.com

Budget is not up to the Expectation from the Stock Market Point of View. As PSU banks are in huge losses and Finance Minister says Rs 25,000 cr for bank recapitalization (less than expected, so negative for PSU banks), People earning more than Rs1 crore will now see the surcharge on income tax go up to 15% from 12%, while for an annual dividend income of Rs10 lakh or more, an investor will pay DDT of 10% and India is the only country who is imposing this tax. And Instead of decreasing STT and CTT FM has increased the STT on options will be again against the market expectations and leads to decrease in Option volumes. These all will leads to decreasing in volume in Stock Market.

Shrey Jain, Founder and CEO, SASOnline.in (South Asian Stocks)

Raising the STT on options comes as a surprise . This would surely increase the impact cost for the average trader . We expect traders will feel the pinch and shift from traditional brokerages to discount brokerages to offset this increase in trading expenses. For the market makers who provide for liquidity in the market this would prove as a deterrent as their margins would be impacted . However introduction of other derivative products in the commodity markets would give further venues for expansion and revenue growth. Further w.r.t 10 percent tax on dividend in addition to DDT if dividend more than Rs 10 lakh a year, corporates would be better off deploying profits for business expansion rather than payouts to promoters which would help revive the capex cycle .

Vikas Gupta, Executive Vice President and Chief Investment Officer at ArthVeda Capital

The budget delivered according to our expectations with respect to the push towards rural sector and public investment in infrastructure like road & railways. Another positive was no slippage on fiscal deficit which shows government’s intent to rein in the fiscal deficit. However it fell short of the expectations on allocation towards recapitalization for public sector banks especially given the NPA mess.

The sectors which in our view are expected to benefit from the budget are:

a)      2 wheeler stocks to benefit from rural spending

b)      Fast moving consumer goods to benefit from surge in rural incomes

c)      Infrastructure companies involved in road sectors

d)      Cement sectors to benefit from infrastructure spending on roads, railways and low income housing

Arun Gopalan, Vice President, Research at Systematix Shares & Stocks

At first sight, we look at the Union Budget as a successful one, given the current global scenario, the space to maneuver was rather limited. But despite that, we feel there is something in it for everybody. The Government has done well to have maintained the Fiscal Deficit at the targeted levels of 3.5% of GDP and has retained the target for FY17 at 3.9%. This is a major positive as it was broadly expected that the FM might have to stretch the fiscal a little to accommodate some expenditure to spur growth.

The agricultural space and rural economy have been addressed with a bounty.The Infrastructure space has been well addressed with an outlay of Rs.221,246 cr.Though the Income Tax slabs have not been raised, the small taxpayer would benefit from the raising of the deduction u/s 80G by Rs.36,000, on rent paid by those not owning a house is a welcome relief. The increase in surcharge by 3% on those earning income exceeding Rs.1 cr per annum is not much of a pinch, as we were expecting a touch of “Thomas Picketty� in it.

Jasmeet Singh Chhabra, Managing Partner, Cerestra Advisors Limited

Nine (9) pillars of growth as stated by the finance minister, is a paradigm shift in the way we look at structural strengthening of the economy. This would go a long way to bring a well-rounded sustainable economic well-being to the nation. Having stated Education & Skills as a growth pillar, certain concessions around service tax waiver in line with the rest of education sector for education infrastructure providers would have been helpful as well. The other positive is the move to remove DDT (Dividend Distribution Tax) hurdle to make Real Estate Investment Trusts a reality, Waiver for DDT for income distribution through REIT/INVITs lays the road for creating effective and robust REIT market in India. A great positive for the capital starved real estate sector.

Dinesh Rohira, Founder & CEO, 5nance.com

A fiscally disciplined agrarian budget, with a focus on the masses is the best way to define Union Budget 2016-17. This budget largely focuses on socio-economic reforms with an eye on long term sustainable growth.  Rural infrastructure, agriculture, healthcare, education, ease of doing business and start-up tax reforms stand out as the core takeaways from the budget that acts a model for long term vision and sustenance.

The fiscal target of 3.5% is the single largest positive take away from this budget, that goes out to say that the government is serious about what it commits, setting the path for RBI to carry out a rate cut in the near future, more importantly sending the right message to global investors and rating agencies. This 1 single step can lead to India’s rating being looked positively by global agencies, as it sets the tone for the future years of this regime’s commitment to the FRBM act and thereby setting the desired tone for long term global investors.