First things first. Keywords and slogans, like defence and railways, that dominated the previous budgets were missing this time.
This was a Budget for coalition partners, towards which Nirmala Sitharaman has loosened the purse strings.
A special financial support of ₹15,000 crore will be extended to Andhra Pradesh via multilateral agencies for development. New airports, medical colleges, highways and tourism in Bihar, and special support for Andhra have been announced.
Further, the government has announced measures directed towards increased farm productivity, employment and skilling, urban development, research, affordable housing, solar energy, MSME sectors, shrimp exports, critical minerals, space economy, digitization, energy transition, and the water sector.
Pre-budget, the biggest fear of stock market participants was a hike in short-term and long-term capital gains tax.
That fear has materialised. The short-term capital gains tax has been increased from 15% to 20%, and the long-term capital gains tax from 10% to 12.5%.
Income from buyback of shares will be taxed at the hands of the recipient. To soften the blow, there has been a hike in the capital gains exemption limit to ₹1.25 lakh per year.
Understandably, the markets have given these measures a thumbs-down. The Sensex was down by 0.6%, the midcap index is down 1%, and the smallcap index is down 0.7%.
I don’t have any budget-based recommendations or trades. I would instead recommend avoiding any knee-jerk reactions.
It is yet to be seen if an increase in taxes on capital gains and on the futures and options segment moderates the speculative forces in the markets. But overall, the financialisation of the economy is a trend unlikely to be dented by this budget.
Coming to what we can expect in the near term in budget context:
Before the budget speech started, I happened to listen to some media experts fussing over the budget and markets.
Since I still had some time on my hands, I did this exercise to find out if the budget deserves as much hype as it is surrounded with.
Here are the results.
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As you can see, there is no consistent pattern for the reaction of the markets.
Over long-term intervals of 5 years and more, stocks have delivered decent returns. And these long terms included a budget season every year.
Ultimately, you would be a lot better off understanding business and industry dynamics rather than fussing over market movements in response to the Budget.
In my view, retail investors should take a longer-term view while investing in equity markets, especially now that there is an expectation of continuity in government policy and actions.
To keep the odds on your side, avoid timing the markets, invest with a long-term horizon, and always keep in mind the stock valuations and your asset allocation.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
The author is Richa Agarwal, editor and research analyst, Hidden Treasure, Equitymaster Research Pvt. Ltd.
This article is syndicated from Equitymaster.com.