It has been a volatile day for the markets as they reacted to the Union Budget 2015 proposals. After a slipping into the negative turf in late morning deals, the markets rebounded after the Finance Minister Arun Jaitley in his Budget speech announced reduction in corporate tax to 25% from 30% for a period of four years. Meanwhile, the Finance Minister has deferred GAAR (General Anti Avoidance Rule) by a period of two years.
Here is how leading market experts interpret the Union Budget 2015 proposals:.
Nandkumar Surti, MD & CEO, JPMorgan AMC
A very strong budget. Emphasis has been on tax simplification, tax compliance and infrastructure spend which is the need of the hour. The government has rightly delayed the Fiscal Deficit target by a year given the private sector challenge to spend money on infrastructure. The priorities are very clear. The direct association of increased excise duty to be spend on road infrastructure shows good use of the increased revenue. The emphasis to financial inclusion through micro refinance augurs well for the rural educated. The various social schemes on medical, accident insurance and push to pension schemes is very well balanced. Budget with a good heart - tax the rich which still doesn't pinch, spend on infrastructure, ease of doing business and social spend - all very well intended..
Arvind Sethi MD & CEO, Tata Asset Management
Just as the RBI has been 'bullet proofing' the external balance sheet we were hoping that the FM would take steps to do that for the governments balance sheet. In that context the budget was disappointing because it assumes a questionable growth rate, relies too heavily on divestment to meet fiscal targets, does not address the revenue deficit issue head on and leaves the good things for the future.
From the rate cut point of view the budget is a little disappointing because they have not dealt with some of the fundamental issues of revenue deficit and still relying too much on divestments as the means of meeting the fiscal deficit. Inflation may continue to come down, but RBI may continue to go slow on rate cuts. We continue to expect rate cut of further 50 bps in 2015..
Dinesh Thakkar, chairman and managing director, Angel Broking
In my view, the FM had to tackle conflicting objectives such as higher share of government revenues going to the states as well as maintaining a tight fiscal deficit, while also increasing public investments to spur growth as private investments are still lagging behind. So, the deficit target has come in a tad higher at 3.9% vs 3.6% expected, but importantly, the additional spending is going towards medium-term growth enhancing areas such as infrastructure, education, skill development and sanitation.
Secondly, this budget carries forward the government’s thrust on taking our economy towards global standards of governance by making it more investment-friendly, fairer and transparent, with its thrust on lower subsidies, better subsidy allocation through DBT and Jan Dhan Yojana, efforts to rein in black money, postponing GAAR and implementing a new bankruptcy law. In keeping with this theme, there is also increasing thrust on social security, with the increase in deductions for health insurance and pension. The surcharge of 2% on corporate tax is near-term negative for the markets, but is well-balanced with the medium term commitment to lower base corporate tax rate from 30% to 25%, simplifying the tax structure as well as sticking to the April 2016 deadline for GST
Nitin Jain, CEO – Retail Capital Markets and Global Asset Management, Edelweiss
I would rate the budget a 7 and a half on a scale of 10! Though it is a fairly well balance budget, the market expectations were really sky rocketing before this day. So I would not be surprised to see a market correction of maybe 5-6%. It is not close to the ‘Visionary document’ that people have been talking about. Overall, I would still say it is well balanced one. The levy on corporate taxation, rationalization of wealth tax, incentives by more expenditure towards infrastructure are all positives. But no where close to what markets were expecting.
For NBFC’s the SARFAESI law is a huge positive, for some infrastructure companies, especially in roads, the EPC companies should do very well. But that is where I would stop. There were much more expectations on infrastructure spending and more than all of this, the expectation on announcements for Banks as banks are in massive need for recapitalization and the budget fell short on those expectations but maybe those may follow soon.
Sandeep Upadhyay, senior vice-president and head of infrastructure solutions group, Centrum Capital
The announcement of award of 1 Lakh KMs of road projects and 5 UMPPs seems ambitious and adequate caution should be exercised in ensuring the provisioning of Means of Finance and all the regulatory clearances and approvals to be in place for these projects before initiating the bid process.
Vinay Khattar, Associate Director and Head of Research, Edelweiss
Primarily talking about stocks, most infrastructure stocks have run up significantly on the Road, Power, EPC players, Port companies, as well as companies on the Railway side. This, in anticipation of these budget announcements. So in the short term there could be neutral to negative reactions given that the run up has already been factored-in . But in the long term, a number of stocks could be multi-baggers even at the levels that they are in, and hence when one invests in any of these stocks or sectors, it should be with a 3-5 year view. The story from that period of time frame looks extremely compelling.
Jayant Manglik, President-retail distribution, Religare Securities
The merger of the commodities market regulator with Sebi was announced in the budget. On its own the FMC has done an outstanding job till now. Last year it was brought under the finance ministry and with the FLSRC recommendation its merger with Sebi was almost inevitable. The effective merger will probably take several months as it may have to be referred to a Standing Committee of the Finance Ministry.
Sebi as an autonomous regulator will, of course, be a big advantage for the commodities industry going forward. It will also help in faster integration of the commodities futures industry into the financial trading landscape. I am sure Sebi will also be well equipped to handle the new challenges which come with the introduction of a new product line under its regulatory oversight.
Objectively, it could lead to the merging of the FCRA with SCRA and therefore faster introduction of new products in commodities like options and indices trading. Eventually this could also mean a common clearing house across assets, giving people access to all trading assets.
Ajay Garg, managing director, Equirus Capital
The capital infusion in the public sector bank of about Rs 8,000 crore is much lower than the expectation of Rs 12,000 crore plus. At the same time including large NBFCs in Sarfesi and removing the distinction between FDI/FII will help private sector banks like Axis Bank.
Surabhi Arora, associate director, Research, Colliers International
The rationalization of capital gain tax regime for REITs is a positive move. This will help to make REITs more financially viable for Indian markets and further push introduction real estate investment trusts (REITs) in the Indian market. REITs’ introduction in the Indian market would not only offer the much-talked-about benefits but also many long-term benefits. If we look at the prevailing situation in the real estate industry, there is no fixed income instrument in the market which provides inflation hedged returns and capital appreciation both. And due to lack of this a significant amount of savings are channelized into gold and speculative real estate transactions. And do not form part of the saving pool and are treated as consumption as part of macro-economic indicators.
A publicly traded REIT will convert such un-productive consumption into a productive asset class. Also REITs will ensure full utilization of such assets and un-lock capital not just for corporates and real estate developers but more importantly for public sector institutions. This will therefore result in formation of capital assets leading to better productivity and greater employment.