Union Budget and the Stock Markets: Basics over big-ticket measures

Jul 11 2014, 12:48 IST
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A section of the Street, however, found the adherence to the FY15 fiscal deficit target at 4.1% of the GDP aggressive. A section of the Street, however, found the adherence to the FY15 fiscal deficit target at 4.1% of the GDP aggressive.
SummaryWhile it lacked big bang reforms that could have excited the market, Budget...

While it lacked big bang reforms that could have excited the market and taken it to new highs, finance Minister Arun Jaitley’s maiden budget nevertheless paid out broad policy measures, including a sharper focus on infrastructure.

Although the Street’s expectations of a clear road-map for the implementation of GST and changes in the retrospective tax framework were not met, the FM's acceptance of a daunting fiscal deficit target as well as the proposed increase in the foreign direct investments in the defence and the insurance sectors were considered big positives.

A section of the Street, however, found the adherence to the FY15 fiscal deficit target at 4.1% of the GDP aggressive given that the budget did not provide any clarity on managing the oil & gas subsidies. The proposed 17.7% growth in gross tax collections too appear challenging, analysts felt. The fiscal deficits targets of 3.6% for FY16 and 3% for FY17 were also seen to be ambitious amidst the the carrying forward of expenditure.

Such concerns notwithstanding, clear emphasis on the infrastructure and real estate sectors were welcome by the Street. The clarity on taxes for Real Estate Investment Trusts (REIT) and Infrastructure Investment Trust (InvITs) with a pass through tax treatment were seen as major positives. Further, the FM’s move to incentivise banks with exemption in CRR, SLR and priority sector lending (PSL) requirements for long term infrastructure lending was welcomed. However, industry experts said that lack of provisions to attract foreign funding at lower cost by offering incentives as well as creation of a single window for land and environment clearances were missing.

Increased personal tax exemption limit from R2 lakh to R2.5 lakh and enhanced deduction limit on housing loan interest payment could support consumer demand with more disposable income. Focus on development of smart cities and low-cost affordable housing are also seen boosting the earnings growth of real estate and linked industries like cement. Absence of clarity on subsidy sharing for the upstream companies and details of measures to meet Basel III capital requirement of PSU banks (R2.4 lakh crore) by FY18 were clear disappointments. Not surprisingly, Stocks from banking as well as oil and gas sector reflected the discontent amongst traders and the equity market witnessed higher volatility in Thursday’s trading session.

Automobiles

While the Finance Minister did not spell out any direct benefits

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