Consumption may increase across market
This budget has come on the back of looming risks from global markets such as increasing rates and diminished capital flows on account of the Trump policies. It has been a very clinical effort to contain fiscal deficit at 3.2%, increased focus on rural, affordable housing and infrastructure spending.
As for Capital Markets, they will breathe a sigh of relief with no negative implications on Long term capital gains and the tenure for classification of the same. The focus on doubling farm incomes and increased spends on infrastructure and housing augurs well for an earnings recovery later in FY18. With fiscal deficit contained at 3.2%, yields will continue to be low and interest rates should be benign. This sets a stage for increased consumption across sections of the market. Disinvestment targets continue to be ambitious at `72,000-cr however the govt hinted at more ETF based selling and strategic divestments which should help them reach closer to the target. In addition higher allocation towards capital expenditure is likely result in a multiplier effect contributing to a pickup in economic activity. It also attempted to provide some amount of consumption stimulus in form of direct tax cuts for lower earners and focus on rural spend.
Real estate sector has become closer to listed equities in classification on Long term capital gains by reducing the tenure to 2 years and base year indexation has been shifted to 2001 from 1981. The increased spends on rural housing accompanied with lower rates and subvention scheme will benefit developers in the affordable housing space. This should spur demand for credit and allied sectors.
We believe this budget is a continuation of the reforms and the changes this govt. has been trying to bring. This is likely to hasten the journey towards increasing the tax to GDP ratio, widen the tax net which will provide more funding for capital spending and allocations to sections of the society which are under privileged. If tax compliance goes up it will set the stage for reduced corporate taxes as well. Given the low interest rate regime and better prospects for earnings recovery; equities continue to the most attractive asset class for wealth creation. The writer is CMD Motilal Oswal Financial Services Ltd.