InvestorQ : Does the Union Budget 2019 really benefit the equity markets?
Arya Nanda made post

Does the Union Budget 2019 really benefit the equity markets?

Deepa Salunkhe answered.
3 years ago

Like in every year, this year also the capital markets looked forward to the budget with enthusiasm and eagerness. Quickly it looks like short term could be negative but there are long term positives for the stock markets. Here are some key takeaways.

· GDP growth of 7% will transform India from a $2.75 trillion economy in 2019 to $5 trillion economy in 2025. Keep an eye on the $2.25 trillion GDP addition and the market cap should go up proportionately. For all you know, you could be sitting on the cusp of a huge wealth creation opportunity.

· The benefit of lower corporate taxes at 25% will still be restricted but with a higher threshold of Rs.400 crore. This will cover 99.3% of the number of companies listed in India in terms of numbers although not in value terms. Most of the Nifty 100 companies are likely to be out of this list. Looking at it positively, this could make a case for getting back into mid caps from large caps.

· Relaxation of FPI and FDI limits is a positive. FPI limits have been agreed to be eased to the industry benchmarks for the sector rather than any blanket limit. There are similar such leeway given to the FDI limits also. The big takeaway is that the budget will combine FPI and NRI investments under a single bracket. Indian NRIs remit nearly $75 billion each year into banks but there is limited interested in Indian equities.

· Minimum public shareholding could be increased from the current level of 25% to 35%, if SEBI also agrees to the idea after due consultation. There are over 1400 companies in India where promoter holding is more than 65% and all these companies will have to reduce their stake. In the short term, sentiments will be negative for these stocks with too much floating stocks lying around. The positive side is that investors could get blue chips at attractive rates.

· Taxing buybacks like dividends may not be a great idea. Cash rich companies were avoiding paying dividends and rewarding shareholders through buybacks since buybacks are free of DDT (dividend distribution tax). The budget has announced a 20% tax on buybacks, making it largely impractical.

· Housing is a big thrust for the capital markets. The HFCs have been brought under the regulatory purview of the RBI and Section 24 benefits for affordable housing enhanced to Rs.3.50 lakhs from Rs.2 lakhs.