If you are a long term equity investor, NOTHING should change in your investing strategy. If you are a Real estate investor the cap of Rs. 200,000 of interest deduction on rental properties should be a hit in the solar plexus. Huge impact on your cash flow post tax. So if you are a person with multiple properties it makes sense to sell of one or 2 properties and downsize your loans.

Key Highlights which I liked….
  1. Listing of railway PSEs like IRCTC, IRFC and IRCON on the stock exchanges for better public accountability and value unlocking. This is good from the companies point of view, and I would have actually liked a privatisation instead of a listing. Listing does not stop the government from interfering in the day to day working. For example all the oil majors have a lot of people on its rolls – and they work with the Ministry. This unnecessary burden and other expenses like cars, guest houses, etc. will be borne by these psus. Of course the prime suspects for the burden will have to be LiC, some govt. controlled mutual funds, listed etf, nps, epfo, army funds…etc. God bless them. 
  2. Concessional corporate tax rate at 25% for MSMEs with annual turnover upto INR 50 crore – good news for Chartered Accountants, more people will create more entities. Such arbitrage opportunities are  God sent for the professionals. May my brethren thrive. 
  3. No transaction above INR 3 lakh to be permitted in cash – I have no clue who would deal in transactions above 3L in cash, and why. RE deals will continue to deal with big amounts of cash, nothing changes there.  
  4. Reduction in the first slab of personal income taxation for individuals between INR 2.5 to 5 lakhs income from 10% to 5%, surcharge of 10% on income between INR 50 to 100 lakh. This is just perpetuating the fraud of not indexing the Income tax slabs and rates. 
  5. Reduction in the holding period from 3 to 2 years for computing long term capital gains for transfer of immovable property. Absolutely no clue who benefits from this change. They could have changed it for debt funds also.
  6. Base year for indexation to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property. Why not say it will advance by one year every year? So in 2018 it will be 2002….and so on? beats me.
Equity Market Outlook
  1. We view the budget as being disciplined in that it focuses on long term growth while sticking to the stated fiscal trajectory. This is true and a good attempt by Jet Lee.
  2. Cheaper borrowing rates expected to boost discretionary consumption in the economy which is trying to emerge from the slowdown effects of the currency transfusion program. Government saying it will borrow Rs. 50000 crores LESS is good for the bond market, and leaves a lot of room for the Corporate Private sector to borrow.
  3. Enhanced agricultural credit limit, increased crop insurance coverage and platform to improve realizations for farmers’ produce could contribute to better farm income and support aggregate demand. Hope that the implementation is done well.
  4. Equity funds with core exposure to large cap and prudent risk taking in mid/small cap space may be well positioned to capture opportunities presented by prevailing valuations and expected earnings growth. (Fund view, Franklin Templeton)
Fixed Income Outlook 
  1. Gross borrowing for FY2017-18 pegged at INR 5.8 lakh crore (same as FY2016-17); net borrowing at INR 3.5 lakh crore (lower than FY2016-17) should result in lower supply of fresh government bonds and may provide an interim comfort to bond markets.
  2. Lower government borrowing could provide more space for corporate borrowings in the capital market.
  3. Global macroeconomic factors such as possible rise in crude prices, stronger recovery in US (which could lead to interest rate hike by the US Fed) and further outflows by FPIs may impact bond markets.
  4. Slowdown in growth, benign inflation coupled with fiscal prudence and lower government borrowing could provide some headroom to the RBI for an interest rate cut. Investors (who can withstand volatility) can consider duration bond/gilt funds.
  5. Low capacity utilization leading to low credit offtake/supply could augur well for spread compression in the sub-AAA segment. We continue to be positive on corporate bond and accrual strategies.

 

 

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  1. Cash restrictions on payments beyond Ra 3 lakhs may adversely impact the auto dealers since a lot of purchases used to happen on cash basis.

  2. Sir,
    You did not comment about the budget proposal of charging LTCG on sale of listed securities if securities transaction tax was not paid at the time of purchasing them. This would have an impact on shares bought before STT was introduced, right ? Though it is proposed w.e.f Apr 2018, it would have an impact on older acquisitions.

    Did I interpret it wrongly ?

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