Though announcements for Bharat and Aam Aadmi far outnumbered sops for India Inc, the stock market seemed to be quite happy with FM Jaitley’s 2017 effort. The Sensex had put on over 350 points by the time the Budget speech was done and has soared even higher since. Here are five key takeaways from the Budget that probably propelled markets.
No bad news is often good news. While the markets were waiting with bated breath for a proposal to tax long term capital gains from equity transactions, or a tweak to the definition of ‘long term’ for stock market gains, neither of these provisions made it to the Budget speech, leading to market cheer.
The FM’s assurance that the CBDT’s December circular applying ‘indirect transfer’ provisions on select FPIs (with over 50 per cent of their assets in India and over 5 per cent stake in listed firms) would not apply to Category I & II FPIs also seems to have buoyed up markets. Enforcing the CBDT circular would have meant that some India focussed offshore funds would have had to pay additional tax on top of short term capital gains tax and Securities Transaction Tax.
With a clamour for a fiscal stimulus and the recent NK Singh Committee offering an ‘escape clause’ from rigid fiscal deficit targets, there was worry that the government would stray from the FRBM target for the fiscal deficit at 3 per cent of the GDP. But with the FM deciding to be frugal and pegging the number at 3.2 per cent for FY18, markets are mighty relieved. The Centre’s plan to slash market borrowings from Rs 4.25 lakh crore in FY17 to Rs 3.48 lakh crore in FY18 also gives India Inc more headroom to borrow, without being crowded out by the Government.
The FM didn’t grant the blanket reduction in corporate tax rates from 30 to 25 per cent. Instead, he announced a selective 5 per cent cut in corporate tax rates for companies with less than Rs 50 crore turnover - a definition which is unlikely to cover most listed firms. But with demonetisation denting consumer sentiment, what India Inc needs the most is a boost to consumer spending. The FM has delivered this by halving personal tax rates on the lowest tax slab (a giveaway of Rs 15,500 crore). He’s taking away only a part of that by way of the added surcharge (Rs 2700 crore).
The latest set of results from India Inc have shown that demonetisation hasn’t delivered a body blow to listed firms as earlier feared. Aggregate numbers for over 240 early bird firms showed a 6.2 per cent growth in revenue and 3.9 per cent growth in net profits for the October-December quarter, over last year. The results showed that the hit from demonetisation was mainly to rural areas. The FM’s intent to double farm incomes, up MGNREGA outlays from Rs 38,500 crore to Rs 48,000 crore, with overall budget allocations for rural India zooming 24 per cent (to Rs 1.87 lakh crore) will prove a good stimulus to rural spending.
Investors are hopeful that with this kind of stimulus and normalisation of currency supply, Bharat will bounce back pretty quickly from the demonetisation dent and so will India Inc.