How to Profit from Small Caps
Click here to know now!

Our all-new mutual fund
portfolio service!
Sign Up for Free Newsletters
Honest Truth by Ajit Dayal
Straight from the Hip by J Mulraj
Back to Budget 08 Homepage

Get More Info

  • Views Search

    Portfolio Tracker
  • : FM, the Farmer's Messiah

    FM, the Farmer's Messiah

    We, together with a lot of other observers indeed guessed it right! This budget, the last before the next general elections, was supposed to be nothing but a way to appease the voters. It turned out exactly that way. There were a whole lot of dole outs and grants for social sectors (and deservedly so) but the scale of the same with no real announcement of a major revenue collection exercise really caught us by surprise. The finance minister, P. Chidambaram also pricked some nerves by not reducing the corporate tax rate and the surcharge thereon. Rather, he increased the short-term capital gains tax from 10% to 15%. The Indian stock market took note of the same with the BSE-Sensex and NSE-Nifty closing the day with big losses.

    The highlight of the Budget undoubtedly was the gargantuan Rs 600 bn debt relief package to the small and marginal farmers. This is likely to have a negative impact on public sector banking companies who will face the pressure on their net interest margins until the subsidy for waiver of agricultural loans is released. The may also face higher delinquency rates due to the increased agri-credit targets.

    Among other sectors, while the budget had no real surprise for the power or infrastructure sectors, healthcare received some mention. Allocation towards healthcare spending has been increased by 15% for FY09. Apart from increased outlay for the National Aids Control Programme and eradication of polio, customs duty was also reduced on specified life saving drugs and on bulk drugs used for their manufacture.

    Automobile was another sector that received a fiscal fillip in the form of reduced excise duties on manufacturing of 2 and 3 wheelers, buses and small cars. A national fund proposed to be set up for furthering the power transmission and distribution reforms also sounded positive as far as the reforms process is concerned.

    The finance minister also made an attempt at giving some relief to the individual taxpayer by increasing the slabs used for assessment of personal income tax. However, the stock markets and India Inc. were the two segments that, apart from some small benefits, received a cold shoulder from the North Block. In fact, if anything, it made life a little difficult for traders by hiking the short-term capital gains tax to 15%. Not that we at Equitymaster are complaining!

    With direct tax collections surpassing all expectations, it was hoped that the budget would provide some relief to the corporates by way of reduction in tax rates and surcharges. The finance minister though, chose not to upset the apple cart and thus, refrained from tinkering of any kind as far as corporate tax rates were concerned. Instead, he maintained the status quo. Rising commodity prices too did not receive attention of any kind.

    What is the post-budget equity strategy?
    There is no real change in our view on stocks post the Budget announcement today. While speculators and short-term traders are likely to feel the heat of a higher short-term capital gains tax, these folks must take respite from the fact that the finance minister did not tinker with the STT (securities transaction tax).

    As for the long-term investors, we believe that they will indirectly benefit from implementation of policies on education and healthcare over the next 3 to 5 years. These steps should position our major strength, our demographics in such a way that we continue to reap the benefits of a growing, sustainable economy for many more years to come. So, if the economy grows, the companies placed in it and consequently, the stock prices would likely take care of themselves. Thus, our long-term outlook on equities remains as buoyant as ever provided one takes sensible investment decisions.

    We would once again like to drive home the point that one is required to continue to invest by understanding the businesses of companies, quality of managements and with strict regard to valuations. Leave speculation to speculators! If the job is done correctly when a common stock is purchased, the time to sell it is - never! Not even in volatile situations like the one we are witnessing these days.

    While it might not be a one-way ride for stocks going forward (it never is), what is more important to note is that equities will provide attractive inflation adjusted returns in the long term. You just have to be rational in your choices and not follow the herd, and you need to value stocks not beyond any accurate or rational reflection of their actual worth. This is not to say that your equity investments cannot legitimately enjoy a huge leap in value, but this leap should be justified by the prospects of the underlying companies, and not just by a herd of investors following each other.

    More Views on News

    How Much Money Should an Investor Set Aside for Trading? (Fast Profits Daily)

    Sep 21, 2020

    In this video, I'll give you a simple equation which you can use to decide how much money you can set aside for trading.

    Kotak Standard Multicap Fund: Strategizing Growth with Focused Approach (Outside View)

    Sep 21, 2020

    PersonalFN's analysis on the features and performance of Kotak Standard Multicap Fund.

    Sensex Can Go to 25,000 Before it Goes to 60,000. Are You Prepared? (Profit Hunter)

    Sep 21, 2020

    Am I expecting a big crack in the Sensex and what next?

    What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

    Sep 18, 2020

    Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

    Sundaram Bluechip Fund: Will Hold the Stable Horses (Outside View)

    Sep 18, 2020

    PersonalFn briefly outlines the newly launched NFO note HSBC Corporate Bond Fund.

    More Views on News

    Most Popular

    How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

    Sep 11, 2020

    This is how you can apply the greed and fear cycle in the market to pick stocks.

    Why am I Recommending Caution? (Fast Profits Daily)

    Sep 9, 2020

    This is why I have changed my short-term view on the market.

    Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

    Sep 17, 2020

    This leading household brand will profit big time in a post covid world.

    This Could Be the Best September for Auto Stocks (Profit Hunter)

    Sep 11, 2020

    Here's why I think this month could be a great for auto stocks.


    © Equitymaster Agora Research Private Limited |
    Why Personalfn? | Why Equitymaster? | Terms of Use | Contact Us | About Us