India Inc speaks: It’s a Robinhood Budget, will level income for masses

In a direct or indirect way, the Budget impacts the equity markets in the following ways.

On reduction of promoters’ holdings from current 75% to 65%, while there is no definitive timeline proposed by the Budget, we think this will be the reality over next 2-3 years. This will bring more liquidity in the system, and so, actually depress prices of some stocks where the promoter holding is substantially higher than 65%. This has a silver lining in two ways. One, some MNCs may want to delist their companies. They will, thereby, make an open offer to acquire more stakes at higher prices. Two, free-float increase will help companies have better weightage in global indices like MSCI and FTSE, with more FII money flowing into these names.

With tax on buyback, the loophole of dividend payout tax savings is sealed. Every time a company pays back to shareholders, they have to pay corporate tax, dividend tax or buyback tax now, and then dividend receipt tax in the hands of individuals, or capital gains tax in the hands of investors. This is not helpful for equity market sentiment and some cash-rich companies will find it difficult to redistribute the cash among shareholders. IT sector companies will be the worst-hit from a valuation perspective. 

Government accessing offshore markets for its borrowing needs will result in domestic yields coming off. That may result in transmitting of lower interest rates into the domestic system. 

There are tax benefits given to electric vehicle buyers, which in a way is an incentive given to adapt to new technology. At the same time, there is a levy of Rs 1 excise on petrol and diesel. Gold additional tax is also targeted towards curbing the flight of foreign exchange. Both will address our problem of crude imports and trade imbalance. 

There are other things like additional tax benefits to homebuyers in affordable category.

The budget has set the ground for the government to execute reforms over the next five years. While the announcements have been on the macro level, one needs to see their granularity to understand how they would impact the economy. 

Overall, we believe that the Budget would set the economy back on a growth path if the proposals are well executed and achieve the $5-trillion mark over the next few years. 

From the capital market perspective, this is not a pro-capital market Budget. It has tried everything to redistribute the income in the hands of masses. In a way, this a Robinhood Budget.

Motilal Oswal, CMD, Motilal Oswal Financial Services