Market Impact post budget 2018 V/S Past Trends
We all have seen the news headlines and articles highlighting the Crash in Stock Markets post Budget 2018 announcements.
Well, this budget doesn’t seem to be good with Indian Stock Markets due to the Introduction of Long Term Capital Gains Tax at 10% above INR 1,00,000 over a year, but before analyzing market impact of #Budget2018 let us take you through what was the impact of Previous Budget Announcements by the same government in previous fiscal years. We have sourced this data from www.forbesindia.com
One week later: The Sensex had an almost non-stop rally from about 17,000 when Narendra Modi was announced as PM candidate. The budget rally was tempered when Arun Jaitley failed to announce any significant policy changes. Over six months: While awaiting the NDA government’s first full budget, the market continued to rally primarily due to the steep decline in oil prices. By hiking excise duties the government was able to sharply reduce the fiscal deficit
One week: By 2015, the government, confident of a better fiscal position, was able to budget for increased spending. The NDA’s 2015 budget got a thumbs up due to the road map for the reduction in corporate taxes, a ‘housing for all’ push as well as a significant bump in the allocation for infrastructure spending.
Six months: While India’s macro position had improved significantly, corporate performance and the lack of earnings growth drove the Sensex down.
One week: The period leading up to the budget had seen a brutal correction in the Sensex, which had fallen by 12 percent from the start of 2016. While the budget brought little cheer, the Sensex began rallying along with global markets as the US Federal Reserve indicated it would go slow on tightening.
Six months: The six months after the budget saw India enter a Goldilocks period of low oil prices, low inflation and low interest rates. Valuations expanded and the markets rallied even in the absence of earnings growth.
One week: The Budget did little to pause the post demonetisation rally, which began in January 2017 after a steep fall the previous two months. Housing incentives were expanded and education and social sector spends were up while the subsidy bill came down—all of which the market liked.
Six months: Sensex valuations continued to expand as the market priced in a revival in earnings. Rising commodity prices aided earnings of oil and metal companies even as India’s macro position worsened. The selling by FIIs was made up by buying from domestic investors.
And now lets see what happened post # #budget2018 was announced.
This time the trend has turned negative which resembles the crash that happened in the markets, wherein Sensex did blood bath of 840 points. Nifty also tumbled substantially. Now, why did this happen, well listed below are few reasons which we think are responsible for this blood bath post #budget2018 announcement:
The re-introduction of Long Term Capital Gains at 10% above equity gains over INR 1,00,000 over a year with Prospective Effect & the Grand Fathering Clause.
Fiscal deficit projection of 3.5% of GDP for the current fiscal contrary to the target of 3.2% earlier
Fitch Ratings didn’t upgrade India’s ratings mentioning High Debt burden of the Government as the reason
The US Impact – Global Markets also turned Negative after fall in most US Stock Indices as a result of Political Crisis and growth concerns.
The imposition of Dividend distribution Tax on Mutual Funds.
- Absence of major announcements for Middle Class
No changes in Personal Income Tax Slabs
Expansion in Coverage of Corporate Tax Rates
India becomes the only country with double taxation in the form of existence of Securities Transaction Tax and re-introduction of Long term Capital Gains Tax in Stock Markets.
Well, one thing to keep in mind while going through the #budget2018 announcements as of now is these are as on date components of Finance Bill 2018, which the government requires to get passed in the Parliament. So, one can expect changes, once the #budget2018 passes across comfortably in the parliament.
But don’t get blown by emotions and stop investing, as Slow and Steady may be an old school concept but still works for equities and wealth building.
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