It might be easy for FM to cheer Mr Market this time: Here’s why

NEW DELHI: One good thing about this year’s Union Budget is that Mr Market is not pricing in any big sops, say market veterans.

Ace investor Rakesh Jhunjhunwala says he does not think investors are expecting anything negative either. “It would be better if the government abolishes long-term capital gains (LTCG) tax. If it can’t, it can extend the tenure to two years from one at present,” the Big Bull said in an interview to ETNOW mid-January.

The domestic stock market didn’t see any pre-Budget rally this time around. Sensex and Nifty shed 1.3 per cent and 1.8 per cent, respectively, for January, the most since July. On Friday, Sensex dropped 0.47 per cent, or 190 points, to close at 40,723, while Nifty shed 0.61 per cent, or 73 points, to 11,962. On Saturday as the bourses opened for special Budget Day trading, the indices opened depressed and traded with deep cuts.

Market veteran Madhu Kela says he wants to hear more on strategic divestment, and he has a solid reason for it. The government wants to do a lot of things, but for that it needs the resources, says he.

Even if the government keeps its disinvestment target at last year’s level of Rs 1,00,000 crore this year and continues at that for next 3-4 years, in five years it will need to sell shares worth Rs 7 lakh crore, which it cannot do through the natural route, Kela points out.

“Assuming that the government brings down stakes in all PSUs below 51 per cent, or even 26 per cent, still it cannot make Rs 7 lakh crore from disinvestment through the natural route. The only choice, in my view, is strategic disinvestment,” Kela said.

The market veteran said it needs to be seen whether strategic disinvestments take place to a third independent foreign player, domestic player or among government companies.

Subdued expectations among market participants bode well for domestic stocks, as they lowers the risk of the market tanking if the Budget turns out to be a disappointing one.

On Budget day in last 10 years, the domestic equity benchmarks have fallen or risen over 1 per cent on five occasions, and ended lower thrice. On most occasions, the equity benchmarks have fallen sharply in kneejerk reaction to the Budget, but rebounded over the next one week.

The initial market reaction has usually been maximum in the futures and options segment. If the market is overbought, then unwinding pressure tends to push the indices southward even at the slightest hint of any negative.

Ridham Desai of Morgan Stanley wants to see action on the reforms front.

“You need greater focus on structural reforms. There is a lot of low-hanging fruit on that front. But the Budget is not the right platform for it. You can make an announcement, but action has to happen on a daily basis. Whether it is liberalising the investment environment, making investments more viable, or actually getting manufacturing companies to start setting up capacities, these are the things that can actually revive the economy,” Desai said.

Desai said the government has dole out some money and hope that people will spend it, but that is not actually going to create a sustainable recovery in the economy.

Market veteran Basant Maheshwari, meanwhile, wants the government to relax personal income-tax rates in this Budget. “You cannot have a guy who is going to office early morning and returning late in the evening to pay taxes at a rate higher than the company he is working with. That is a no brainer, and income-tax has to be relaxed,” he told ETMarkets.com.

“The long-term capital gains (LTCG) tax has to go. The government in any case is not making any money from it. The dividend distribution tax should also be revisited. Companies are not keen on distributing dividends, because dividends actually attract a distribution tax,” Maheshwari said.

On dividend distribution tax or DDT, Jhunjhunwala has a different view. He said the 20 per cent dividend tax is not Draconian, and that any tax put on dividend income is not needed. “I think 20 per cent rate of dividend distribution tax is okay. I do not think we should tinker with that,” he said.

Maheshwari says this would be the first time in last 25-30 years that India has slowed down on its own without any global issues. "The government cannot sit back and hope for something magical to happen on its own," he said.