The Impact of Budget for 2008-09
How will it affect investors?The D-Day , or shall we say the B-Day, of 29th Feb 2008 has just passed us. The first impression which the investor would feel is that the FM did not talk much about him and almost ignored him. But if the same investor puts the garb of the common man, then he is happier with this year’s budget.
For all individuals:
There were many positives for all of us at the personal front, though there are no radical changes proposed. Some key proposals are:
The increase in the general exemption limit from Rs 1.10 lacs to Rs 1.50 Lacs has been well received, as the general expectation was of Rs 1.25 lacs. Moreover, the change in income tax slabs is also more than what the common man would have expected. For example, individuals in income levels above Rs 5 lakhs stand to gain almost Rs 40,000 – 45,000 by way of reduction in income tax liability.
The Senior Citizen savings scheme (2004) and Time deposit accounts have been included under Sec 80 C. Thus fresh investments under these heads will get the extra benefit of Sec 80C.
There is an additional deduction of Rs 15000/- under Sec 80D for medical insurance premium paid for parents. Thus the individuals’ limit under Sec 80D, remains at Rs 15000/-.
There has been important clarification in the Reverse Mortgage facility, introduced earlier. The budget has clarified that a reverse mortgage will not amount to ‘transfer’ nor will the stream of revenue from it be treated as ‘income’. Thus a person entering in to a reverse mortgage is now not deemed to have ‘sold’ or transferred his assets nor is the inflow from it taxable.
For Investors:
As investors, the increase in the short term capital gain tax from 10% to 15% is a negative, especially considering the current market conditions post the Jan 08 fall. The additional monetary outgo may not be a large one, but such an increase has a sentimental impact.
Similarly, Corporate India was eagerly expecting a reduction in the corporate tax rates, especially the surcharge. But there was no change in this either.
Some excise duty cuts on specific products like small cars, Pharma and 2-3 wheelers should reduce the cost of production and improve sales, but no major impact may occur on the profitability.
The FM has also indicated that the STT (Securities Transaction Tax) paid will be treated like any other deductible expenditure against business income. This was earlier available as a rebate from tax liability. This is a positive for investors, especially those investors in the higher tax slab, who treat trading in shares and stocks as business activity.
The FM remarked in the Budget that the consistent inflow of foreign capital is causing concern. The Rupee (INR) has been appreciating against the dollar due to this and touched a level of Rs 39 to a dollar. However, the rupee has since depreciated to the current level of near Rs 40/-. If the government takes further measures to curtail or control inflows, the rupee is likely to touch Rs 41 / Rs 41.50 in the near future. This will have a direct benefit for the exporting companies especially in the Technology and Pharmaceutical industries.
On the macro economic front, the FM is anticipating a GDP growth of 8.80% for the current year. However he has provided a caveat of in the form of concerns over the rising Crude oil prices and also general slow down in the world economy. It is important for investors to note here that a slowing US / world economy should logically have its direct impact on growth rates of emerging economies too, including India. The growth rate being sustained at 8.50% + levels may come under serious threat in the event of US economy going further in to a recession. Thus though the FM appeared confident of achieving high growth rates, investors may well take a cautious view.
Impact on SENSEX:
While the market’s initial reaction to the budget was negative, we may expect that because of lack of any further major triggers, our markets may still spend more time consolidating and taking cues from the world markets.
We expect a broad consolidation range of 16500 and 18800 Sensex levels in the coming few weeks. However investors may surely witness stock specific rallies. Only a rally beyond 19250 now, should indicate further bullishness. (Please see Sensex chart below )
Our eyes are currently fixed on those sectors / companies which have not performed well even during the pre-Jan rally. Technically there are enough signals suggesting trend reversals in the below mentioned sectors.
Moreover, stocks which have seen speculative rallies before the Jan 08 fall are more likely to witness selling pressure at each rise and investors must use these price rise to exit them rather than becoming bullish on them.
Sectors to watch out for in the coming months would be - Pharmaceutical Industry Technology / Education Sector, Sugar and Oil & Gas
Pushpdin Team
