Stockmarkets Expect Little From Union Budget

The countrys stockmarkets do not seem to have too many expectations from Union finance minister P Chidambaram.

Barring the age-old demand for the restoration of section 80(M) in the Income Tax Act where a certain percentage of corporate investments in the Unit Trust of India is tax free, reactions from the stock market indicate that the second Union budget of the United Front government is not stirring up too many pre-budget expectations.

Dealers on the National Stock Exchange and the Calcutta Stock Exchange said yesterday that no financial sop can revive the stock market.

A reduction of taxation or scrapping the minimum alternate tax may boost the market on a short term basis, but market buoyancy will not be achieved unless the fundamentals improved.

 

Ajit Day, member broker of NSE and CSE said: Investor confidence has to be restored to boost the market. This can be achieved only if overall growth of industry is boosted. And for this government investment is vital in key areas of infrastructure.

Primary sector slowdown is an indication of the sluggishness of the Indian industry. Sectorwise piecemeal sops will not help the stock market rise. What is needed is a rational growth-oriented budget.

Important players in the stock market said that it is unrealistic to expect foreigners to invest in our basic infrastructure.

They said that even if this happens, the costs will be too high for the country with the foreign players expecting state guarantees and imposing numerous conditions for inflow of costly funds.

Another is the huge oil pool deficit which is projected to be Rs 18,000 crore by March 1997. The sentiment is this cannot be sustained and oil prices are bound to increase. This will trigger inflation and affect the stock market in a big way.

However, some brokers said that tax reduction can help the market in balancing the negative factors.

Ajay Kayan, member NSE and CSE, said: Double taxation and minimum alternate tax should be withdrawn immediately. Corporate tax also needs to be reduced as much as possible to boost industrial growth and pull up the stock markets.

CSE broker Subhash Pachisia said: Double taxation of dividends should be revoked and corporate taxation reduced. Capital gains tax should also be reduced to 10 per cent.

All stock market players are concerned about the duty structure and are anxious about a possible further reduction.

CSE committee member B C Lamboria said: Indian industry has to be protected and excise and customs duty structured in a way that allows domestic industry to sell their goods and reap fair profits.

Indiscriminate reduction of customs will lead to swamping of the Indian market by cheaper foreign goods and will throttle our industry.

Brokers expressed their anxiety about the failure of successive governments in controlling non-plan expenditure.

Prominent Natioonal Stock Exchange brokers said that following the dictates of the WTO blindly without protecting our industry will lead to a Mexico-like situation where we will be stepping into a debt trap.

The overall feeling is that the budget will spring no surprises and no overnight remedies for the stock market will be presented. In any case, Chidambaram has very little room for manouevre, brokers say.