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

    Top 5 Recent IPO Developments You Should Know (Views On News)

    May 12, 2021

    So far in 2021, IPOs in India have raised nearly US$ 3 bn, the best start to the year since 2018.

    How Did Mindtree Perform in Q4FY21? (Company Info)

    Apr 20, 2021

    Here's the rundown on the company's latest quarterly results.

    Is Intraday Trading For You? (Fast Profits Daily)

    May 13, 2021

    Do you think you have what it takes to be an intraday trader? Find out in this video.

    Beware! Not Every EV Stock Will Be a Tesla (Profit Hunter)

    May 13, 2021

    Analyse the business models of EV stocks before investing in them.

    Are Value Funds Ready to Shine? (Outside View)

    May 12, 2021

    PersonalFN explains whether the recovery in value funds sustain after generating superior performance in the last one year.

    More Views on News

    Most Popular

    The Next Smallcap Winners (Profit Hunter)

    Apr 30, 2021

    Price is the only due diligence one might require to buy this business.

    Time to Buy Smallcaps? (Fast Profits Daily)

    Apr 30, 2021

    In this video, I'll show you why I favour smallcaps over the Nifty.

    Are the Stock Markets Deaf to Covid Agony? (Profit Hunter)

    May 6, 2021

    Why are markets discounting the economic impact of Covid?

    My Secret to Find Breakthrough Stocks (Fast Profits Daily)

    May 7, 2021

    I've used this trading technique for many years with great success. I'm sharing it with you today.


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