InvestorQ : Is the relief package announced by Nirmala Sitharaman on Friday likely to be instrumental in giving a boost to the capital markets?
Anu Biswas made post

Is the relief package announced by Nirmala Sitharaman on Friday likely to be instrumental in giving a boost to the capital markets?

Neelam Naik answered.
3 years ago

You must look at two specific areas on this announcement; the tax announcements and the capital market related announcements. It was not possible to gauge the impact of the package on Friday because it was only announced after trading hours. However, the impact will be known only on Monday. While the announcement has some fire in it, the larger issues like the worsening trade war situation could have a larger bearing on the markets in the coming week.

The tax reliefs were a major area of focus and that has been adequately focused on. For example, while the super rich tax still stays (FM has promised to review it in 2022); the FM has scrapped the additional surcharge on all forms of capital gains. That means all investors, domestic and foreign investors will be exempt from the impact of the surcharge. This should come as a relief to DFIs and to FPIs. This specifically applies to FPIs that are structured as trusts because that is where the higher incidence of the surcharge was applicable. Now FPIs need not rush to convert themselves into corporate structures and also this should put a temporary stop to the sustained FPI selling in the markets. Continuing on the tax front, the FM has finally done away with the highly controversial Angel Tax under Section 56(2) B. This was a major bone of contention for start-ups and start-up investors where the transaction value was greater than the computed fair value. That problem has been laid to rest, and that should be positive for the start-up scene in India.

Apart from the tax boost, the FM has also offered a major push to the capital markets; both equity and to debt markets. With major infrastructure spending in the offing and with budget constraints, the FM has promised a quick deepening and broadening of the bond markets. Of course, more details are awaited on this front. Bond markets have been institutional for too long in India and surely needs a change. The FM has also taken steps to provide greater corporate access to global markets with a view to giving them a wider choice of fund raising platforms. Interestingly, the government has been totally silent on the sovereign bond raising plans due to the currency risk involved and as of now it looks very unlikely that the government would go ahead with the move. Coming to equity markets, in a bid to boost the equity side of the capital markets, the FM has simplified the Aadhar based KYC process for demat and MF investing. There will also be a rupee offshore market, which needs to be observed closely, especially after the experience with Masala Bonds.