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All domestic factors now out of the way for a structural Bull market in India
Wed, Feb 01, 2017
Source : Sanjay Sinha, Citrus Advisors

I rate the Budget of 2017 at 8/10. This was the best set of proposals to complement the radical transformation of the Indian economy let loose after the announcement on Demonetisation on the night of 8th November 2016. Now that the Government has managed to get almost all the high value currency into bank accounts and therefore marked with a trace, the next thing they needed to do was encourage people to prospectively pay taxes and keep their money clean. There is now a substantial incentive for those earning up to Rs 5 lakhs (and maybe more) to pay a nominal 5% tax and account for their income and wealth. It will now be equally attractive to pay 25% tax by a small business with a turnover up to Rs 50 crs rather than fall back upon the draconian IDS 2 and pay 50% tax and lock in an additional 25% of his undeclared income in interest free deposit for 4 years. It is ludicrous to believe that only 20 lakh people in the country have an income above Rs 5 lakhs!

The absence of the much feared negatives such as tinkering with the long term capital gain tax (LTCG) by enhancing the period of holding from 1 to 3 years and raising the service tax have been skirted in the Budget ’17. This has lifted the clouds of uncertainty hovering over the markets. They have been on a roll anyway over the last few days enthused by better than expected corporate performance in the 3rd Quarter of FY17.

On the macro front, the Budget has presented a very mature picture by limiting the fiscal deficit target to 3.2% for FY18. In a background of all the uncertainties such as assessment of the full impact of demonetisation and GST, it is a prudent to seek a modest relaxation over the targeted 3%. I expect the tax buoyancy in FY18 to be so high, supported by larger volume of economic activity and individuals willing to come forward to pay taxes that this number will be undershot.

An aggressive spending of Rs 3.97 lakh crores on infrastructure is the badly needed pill to assuage the pain that the country has been bearing for the last 3 months. Thrust on housing and particularly granting infrastructure status to affordable housing is also likely to reverse the migration of labour which went back to their villages after their sources of income evaporated in November last year. Providing a livelihood is better palliative than giving a direct subsidy.

Having said that, we should not forget that equity markets are always characterised by volatility. 4 factors will be in the forefront to affect the market levels in 2017. Quarterly corporate performance, Government policy (GST implementation being just one of them), politics (UP election outcome being the nearest one) and last but not the least Global markets (currency followed by protectionist policies being the ones which are dominating mind space right now). But, these may cause occasional spikes as Demonetisation and Trump in combination did 3 months ago. Keep the faith, buy at every dip, as much as your risk appetite permits you to. We are set for the mother of all bull runs over the next 5 years.

 

 
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