impact of the budget on markets 2014

8/10/2019 Impact of the Budget on Markets 2014

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A tour of new features


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No big bang announcement on capitalmarkets. The undertone is positive and market

will move upwards short term- Ramesh Damani

(MD, Ramesh Damani Finance)


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Focus of the Budget

1 # FISCAL DEFICIT

What

When

Why

FRBM

Impact

What has the govt. done

about thisCritisicms ( crisil n

GOVERNMENTEXPENDITUREs

GOVERNMENT

EARNINGS


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Superior Text

2# Productive Spending

What needs to be done

Impact on infrastructure,

healthcare and education

Character S p a c i n g

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Styled Underline


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3# boost revenue

Implementation of GST

reason

Tax structure

4# Disinvestment

Soft Shadow

Bevel

Reflection


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Fiscal Deficit: The Government kept thefiscal deficit target of 4.1% for FY15, while

following the Kelkar committeerecommendation to reduce it to 3.6% inFY16 and 3.0% in

FY17. No concrete plan has been laid down

on how the target would be achieved. No to spending cuts: The FinanceMinister indicated that the Governmentcould not rely

only on spending cuts to reduce the budgetdeficit and should also work to spureconomic

growth back to 7%-8%, which would resultin higher tax revenue. The objective is to

increase growth which in turn would lowerfiscal deficit as a % of GDP


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The Government has proposed auniform KYC (Know Your Customer)norm with inter

usability of the KYC records across

the entire financial sector and asingle demat account

so that consumers can access andtransact all financial assets throughthis one account.

The Government has proposedInternational settlement of Indiandebt securities and has

completely revamped the IndianDepository Receipt (IDR) scheme.

Liberalising the ADR (American

BusinessProcess

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Support

Optimize

Change


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. The increase in deduction under Section 80 C to Rs.1.5 lakh brings cheer to Equity Linked

Savings Schemes.

The move to increase the holding period for longterm capital gains tax for fixed income

funds from 12 months to 36 months has taximplications for investors in Debt Mutual Fund

schemes. The applicable tax rate on long-termcapital gains, will now be 20 per cent on the

nominal long term capital gains indexed forinflation.

The Finance Minister removed an anomaly in DDTwhere effective tax rate was lower than

the actual tax rate. Investors earning dividendincome will receive lower dividend post the

DDT amendment. This is applicable from 1stOctober 2014.

I


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Equity Market Outlook

The Union budget of 2014-15 did not roll out any big bang reforms but has certainly has

provided a roadmap for the way ahead. It has largely been a balancing act between reducing

fiscal deficit and providing growth impetus to boost GDP growth. The Government retained the

fiscal deficit target of 4.1% of GDP for this fiscal (as estimated in the Interim Budget in February)

and also set a target to achieve a lower fiscal deficit of 3.6% in 2015-16 and 3% in 2016-17.

Market participants would have liked much more clarity on how this target would be achieved.

The thrust on agriculture continues with farm credit target at Rs. 8 lakh crore. It attempts to

provide a boost to consumption & savings through enhancement of standard deduction, higher

housing loan deduction with cut in excise and customs on certain products.

The Budget has set the divestment target for the current fiscal at Rs. 58,425 crore. This includes

Rs. 43,425 crore from selling stake in PSUs and another Rs. 15,000 crore from sale of residual

stake in the erstwhile government companies. If the market remains buoyant this target seems

achievable.

In the near term as the euphoria of the Union budget subsides in, near term earnings may drive

the market forward. First quarter earnings of FY15 have started to arrive and this could be the

driving force for the market in the near term. Market participants will be closely following

developments on the monsoon front. Macro indicators like WPI, CPI and IIP will be keenly

watched as it is li kely to provide directions for the next Bi-monthly Monetary Policy Review due

in August.

On the Global front, financial health of the European banking system is once again under

question after signs of fi nancial stress in Portugal l ead global equity markets lower.Fixed Income Market Outlook

In the current fiscal, t he Government will borrow Rs. 6 lakh crore, up from Rs. 5.63 lakh

crore last year and marginally up from Rs. 5.97 lakh crore announced in Interim budget,

as it repays past liabilities and uses debt to bridge revenue shortfall. However, the net

borrowings will be Rs. 4,61,204 crore, after considering repayments of past loans and

interests. This is nearly Rs. 7,700 crore lower than Rs. 4,68,901 crore in 2013-14 and

higher by Rs. 3,884 crore from Interim budget.

Although Union budget of 2014-15 has maintained the 4.1% fiscal deficit target, lack of

clarity on how the target would be achieved will result in uncertainty. In the near term ,

bond yields are expected to remain range-bound with an upward bias.

In the near term market participants will be keenly watching macro economic data which

will provide directions on what will be happening in the upcoming bi-monthly monetary

policy review in August. Any uptick in either headline or consumer price inflation could

be deterrent for the market. Inflation is expected to fall due to favourable base effect in


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