In her maiden budget speech, our new Finance Minister tried doing a balancing act. There was a social angle in the Budget, but at the same time she did not try tinkering too much with direct and indirect taxes. The Budget document speaks of a 3.3% deficit but the road map to achieve that is missing. In the last few years the government has curbed its spending and tried achieving fiscal discipline, but that is not the best way to get the results.
This budget has addressed equity market issues in direct and indirect manner.
On Promoter’s holding reduction from current 75% to 65%, while there is no definitive timeline proposed by the Budget, we think over next 2-3 years this will be the reality. This will bring more supply in the system, and therefore, actually depress prices of some of the stocks where the promoter holding is substantially higher than 65%.
The HNI Tax increase above ₹2 crore and ₹5 crore is a dampener but not unexpected, given the social angle that this government is embracing
With tax on buyback, the loophole of dividend payout tax savings is sealed. Every time a company pays back to shareholders, they have to pay corporate tax, dividend tax or buy back tax (now) and then dividend receipt tax in the hands of individual or capital gains tax in the hands of investors. This is not helpful for equity market sentiment and some of the cash rich companies will find it difficult to redistribute the cash in the hands of shareholders. IT sector companies will be the worst hit companies from valuation perspective.
There are Tax benefits given to EV buyers, which in a way is incentive given to adapt to new technology while also levying ₹1 excise duty on petrol and diesel.
From the capital market perspective this is not a pro capital market budget; it has tried everything to redistribute the income in the hands of masses. In a way I would call this a Robinhood Budget.
Motilal Oswal, CMD, Motilal Oswal Financial Services Ltd
