Expert Opinion: Speaking extensively, Satish Menon, Executive Director of Geojit Financial Services, discussed the Union budget and the post-budget strategy for investors. Menon stated that the market expected an increase in capital gains tax in the upcoming years when discussing increases in long-term capital gains (LTCG), short-term capital gains (STCG), and Securities Transaction Tax (STT).
Edited excerpts:
The broad market valuations are currently high, but sectors with strong growth prospects, such as manufacturing, electronics, IT, renewables, healthcare, e-commerce, infra, agriculture, and consumption, remain attractive. Some areas are expensive, so it is crucial to focus on stock fundamentals, avoid overvalued stocks, and adopt an accumulation strategy. Targeting specific stocks and sectors is advisable. To achieve better returns and ensure safety, consider rotating out of recent outperformers and shifting to value sectors from growth stocks which are generally expensive.
The market anticipated an increase in capital gains tax in the coming years. The gap between capital gain (LT & ST) tax and other sources like salary is high. The peak effective tax rate of salary above ₹2 crore is 37%. The 25% increase in LTCG from 10% to 12.5% is unlikely to impact investors’ outlook to invest in the growing Indian equity market, generating above-inflation returns. However, the 33% increase in STCG (20% from 15%) and STT in F&O could negatively impact short-term investor sentiment.
The biggest winner is fiscal prudence, which is likely to upgrade the country’s rating and currency in the long term. Key positives include employment generation schemes and a cut in customs duty to boost manufacturing. The budget forecasts a balanced tax collection and expenditure, with a prudent expenditure plan avoiding populist measures. However, the budget lacks the momentum to surpass the interim budget. Market expected an increase in revenue and capital expenditure, which was not addressed.
Generally, an emphasis on these is likely to enhance rural consumption and capital expenditure. Sectors which may benefit from this include staples, FMCG, agriculture, fertilizers, cement, infra, telecom, and consumer durables & services. Efforts to improve income from agriculture by increasing production and supply chains will expand demand, mitigate inflation and lower input costs in the consumer sector. The continued focus on aquaculture, through measures to cut custom duty, reduce input costs and extend financial support to double seafood exports in the long-term, is a major boost for aquaculture companies.
The government plans to open the nuclear sector to private players, creating new opportunities for equipment manufacturers, EPC and services. Private involvement is expected to grow significantly, with the sector forecasted to reach 19.8GW by FY32, contributing 4.4% to total power generation. Although current private participation is limited, future partnerships in Small Modular Reactor (SMR) are likely. The government will use a hybrid model, where private entities invest in infrastructure and earn from electricity sales, while NPCIL handles reactor construction, fuel management, and operations. SMRs may also be used for green hydrogen production. (No comment on stocks)
The recent fiscal budget has removed the indexation benefit for properties acquired after 2001 and reduced the LTCG tax rate from 20% to 12.5%. This change increases the tax burden for property sellers with gains under a CAGR of 10% and benefits those with higher capital gains. While the revised tax structure is unlikely to significantly impact long-term end-users, it may deter short-term speculative investments in the property market. The Indian real estate upcycle is expected to continue in the near term, but sales and realisation growth are likely to stabilize after a strong performance. Considering the premium valuation of the sector, currently we have a cautious view.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
