By Mr. Dhiraj Relli, MD & CEO, HDFC Securities
The FM has done well in abiding by the fiscal prudence principles for FY21 and the targets set by her look achievable. But it will be crucial for her to stick to it for FY21, else the international rating agencies may have adverse views.
The markets have reacted negatively to the Budget, mainly due to some disappointments on account of non-abolition of LTCG, confusion about the impact of DDT removal and taxing dividends in the hands of recipients. Also the alternative provided to individuals for lower rate of tax, provided they do not claim exemptions/deductions, did not seem too attractive. The alternative tax system discourages investments which market participants do not seem to be comfortable with. The overhang of coronavirus outbreak on our markets also got magnified in the later half of the session. Foreign investors will look for signs of revival of growth before they commit funds.
The continuance of LTCG and now dividend taxation might not stimulate positive sentiments for the capital markets but the other themes in the Union budget show a clear thrust towards improving the competitiveness of Indian businesses and Indian citizens while providing liquidity in the hands of individuals. Whether this will result in consumption revival will be interesting to watch.
The markets will absorb the Budget effects in the next few days and in case the virus situation stabilizes, we may even see a bounce in the markets in the near term.