Feb 01

What’s in the Budget for you as an Investor?

Finance Minister Arun Jaitley has stayed away from populist measures even though five states are going for election this month. Instead, he has presented a number of growth-oriented measures.

Viewers watching Jaitley’s speech live in Parliament would have been disappointed that there were no fancy announcements. However, many of his pronouncements appear to be reasonable, even achievable.  Some of the significant areas are low borrowings and a push for infrastructure projects.

There was considerable disappointment on the personal taxation and corporate tax fronts. Those expecting higher tax benefit on personal tax were a little disappointed. Although Jaitley has brought down the tax rate for the first slab to 5 per cent, the effective savings will only be Rs 5,000. Why? That’s because most investors would have saved Rs 1.5 lakh under section 80C. So, up to Rs 4 lakhs, there is no tax and from Rs 4 lakh to 5 lakh, at 5%, it will be Rs 5,000. After that it is a flat Rs 12,500 across slabs.

On the real estate front, much was expected, especially as the government wanted to reduce the influence of black money. A big push in the real estate sector was expected, but not delivered. Investors fond of real estate were equally should have disappointed.

In the past, many people would have bought a second house and let out the property to avail themselves of tax benefits for the entire interest paid. For instance, if you took a loan of Rs 50 lakh in the first year, you would have paid interest close to Rs 3.7 lakh if you borrowed at 9%. Under the new rules, you will be eligible to claim only Rs 2 lakh, which is a big setback but only to those who buy real estate on a speculative basis or for investment purposes.

Moreover, to bring individuals to financial assets and reduce speculation in real estate, long-term capital gains have been reduced to two years. Now, people will sell property to move to financial assets. So, there will be a pressure on real estate prices.

Equity Market Appears Attractive

With inflation under control and the fiscal deficit at 3.2% of the GDP, the rupee will be stable against the US dollar. This will be a dampener for gold and as an asset class; gold is not attractive from an investment point of view. With lower government borrowing and lower fiscal deficit, the banking system will have good surplus for credit. Since credit offtake is not brisk, banks may cut interest rates.

Most of the time, when borrowing cost is low, the credit cycle picks up. With the government thrust on infrastructure, cyclical industries are likely to revive. Such a situation will push up the top line (sales) as well as the bottom line (profits) of the companies and it will induce investors to look at stocks.

So, you as an investor keen on creating wealth should naturally look out to equity. This sector currently looks attractive and is capable of giving decent returns.

What should you do? Do not stagger investment at this point. Instead, go in for lump sum to earn better returns.

The headwinds can come from US action on several front as Donald Trump takes one controversial decision after another and also if the BJP does not gain from the upcoming elections. But after some time, the market may discount such news.

For details on where to invest, contact me.

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