I have long held the view that the Union Budget announcements comprise far more than mere economic intent. They are as much a statement of socio-political intent.
The failure of many market participants to recognise or accept this fact, is perhaps why the key indices have usually taken a slam dunk by the end of trading hours on the day the Budget is announced. Expectations are built up and when they aren’t met, there is disappointment. Quite often, the expectations are not unjustified either.
Take for example, the treble taxation of dividends where the corporate first pays a full tax (25 per cent), a Dividend Distribution Tax (raised from 14 to almost 20 per cent in the recent past) and yet another tax slash if dividend for the recipient exceeds the threshold limit (10 per cent).
There was a justifiable expectation that this anomaly might be addressed, but it was not.
Similarly, in an economy aspiring to be a $5 trillion one, equity market participation in the vicinity of 5 per cent is abysmally low.
The rather harsh decision to reintroduce Long-Term Capital Gains on Equity Investments without even withdrawing the far more lucrative Securities Transaction Tax (STT) has been a serious sentiment dampener.
Here too, there was a justifiable expectation that this anomaly might be addressed, but it too was not.
Now, this is where socio-political understanding kicks in. It was in any case overly optimistic to expect the Finance Minister, in her maiden Budget, to undo overnight what her predecessor, who is also a veteran party leader, had deemed fit.
The social angle, of course, is the perception that market participants, especially those that make big gains, are the better-heeled, and any prompt rollback would be seen as bowing to them at the cost of the socially and economically deprived.
Then, there were two announcements in this Budget that particularly displeased market participants. The decision to increase the public float from 25 to 35 per cent was seen as leading to a likely supply side flood into the market, even though the intent of this move seems bonafide and aimed at improving the depth of the Indian bourses in the long term.
Then, the move to tax buybacks was seen as market unfriendly, though the announcement seemed more of a response to some corporate, using it as a loophole to bypass dividend distribution tax.
So, is it really all doom and gloom for the equity market as the initial reaction to the Union Budget suggested? Well, there can be a slew of measures that can be announced off-Budget to bolster the economy and the capital markets. And yes, the Budget had longer term market macro positives too, which can have an indirect bearing on the capital market.
Personally, I’d rather shed the gloom, bide time and use the interim to pick the best-fit investments needed to bolster one’s portfolio before the tide inevitably turns.