The Union Budget for the year 2023-24 will be presented by Finance Minister Nirmala Sitharaman in the Parliament on February 1. The Budget usually causes volatility in the market and this time is not likely to be any different.
Since the massive crash during COVID, a number of new-age/millennial investors have entered the stock market whether through MFs, SIPs, or direct stocks. The number of Demat accounts added in the previous month was over 10 crore on the back of attractive returns from the equity markets, ease of account opening process, and increased financial savings.
Let's understand what the new-age/millennial investors expect from the upcoming Budget.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, newbie investors expect initiatives to sustain growth in the economy. Only high growth and good corporate earnings can keep the markets buoyant, he said.
Secondly, according to the expert, these investors will be looking for fiscal consolidation which is necessary for financial stability in the economy. Thirdly, from the taxation perspective, investors expect simplification of the present complex capital gains tax regime, he noted. Raising the income tax exemption limit to 5 lakhs is another wish, added Vijayakumar.
Vinit Bolinjkar - Head of Research - Ventura Securities, also believes that tinkering of capital gains taxes is at the top of wishlist of new-age investors.
"Long-term capital gains (LTCG) up to ₹1 lakh are exempted from income tax, while short-term capital gains (STCG) are only adjusted under the basic exemption limit of individual income tax, which is ₹2.5 lakh. STCG can also be allowed with some tax exemption limits. 80C limit could be raised to improve savings, which will indirectly reduce extra spending and inflation," he said.
Manavi Prabhu, Head - Fixed Income, Anand Rathi Shares and Stock Brokers said that from an investor’s perspective, simplification of taxation policies is a need.
"There could be some changes in terms of capital gain taxation given the varied rates and holding periods across assets. This could be in terms of uniform holding periods across assets for example long term capital gains on listed bonds is considered long term after a year where as the same investment via a debt mutual fund is considered long term after 3 years. There could also be an introduction of uniform tax treatment on capital gains for similar investment vehicles to ensure parity across asset classes. The idea would be to encourage long term savings," she noted.
Dr. Suresh Surana, Founder, RSM India, believes that the retail investors expect the rationalisation of the period of holding for different securities and the applicability of a uniform tax rate.
"At present, the gains derived from shares and securities are subjected to capital gains tax rates which differ based on the nature of the security as well as the period of holding of such security. The threshold holding period based on which such gains are categorized into short-term and long-term would differ for different securities. For instance, listed equity shares and mutual fund units have a threshold period of 12 months whereas unlisted shares have a threshold period of 24 months and debt mutual funds would require a threshold period of 36 months to be satisfied for capital gains to be categorized as long term. Consequently, the tax rates applicable would further differ based on such different periods of holding. Such multiple threshold holding periods create an unwarranted complication for taxpayers. Thus, it is expected that the government considers applying a uniform holding period for different securities to qualify as long-term or short-term capital assets and also, a uniform capital gains tax rate for all forms of securities,” he explained.
Meanwhile, Sunil Damania, Chief Investment Officer, MarketsMojo, said that he is uncertain as to whether the government will provide something tailored to the needs of new-age investors.
"No government will distinguish between experienced and inexperienced investors. The budget must be equitable for all. Hence, we do not foresee anything that will be exclusive to new-age investors," Damania pointed out.
Budget and markets
Vijayakumar of Geojit noted that the Budget will have only a limited impact on the market. "The market trend would depend more on global economic conditions and US interest rates. India is likely to outperform other large economies this year," he said.
Damania also pointed out that the Budget's importance has been diminishing over time. An event like the Budget has the potential to influence the market for one to two days, but not beyond. Since the Union Budget will inevitably occur during one's investment journey, it should not be an occasion to derail one's strategy or plan, he advised.
Themes to focus on
B Gopkumar, MD & CEO, Axis Securities, expects the Budget to be growth-oriented. "The primary focus of the Budget is likely to be on job creation and investment-driven growth. The real estate sector may get a boost with some announcements to expand the current income tax benefit for housing. Measures to stimulate rural spending and infrastructure development would be the highlight in the Budget. Any roadmap to build and bolster the entrepreneurship culture can promote self-reliance and go a long way in employment generation. Overall, with its focus on growth and development, this Budget may have something for everyone. FMCG, manufacturing, MSME, and banking are a few sectors that may see action," he said.
On the other hand, Bolinjkar from Ventura noted that with the government's continuous thrust towards the capital formation, it is expected that the FY2024 Budget will focus on providing enhanced allocation towards capital-intensive sectors such as roads, highways, railways, etc. The capital expenditure target can be raised to ₹9-9.5 lakh crore from ₹7.5 lakh crore set for FY23. In addition, the government may continue to provide a push to affordable and rental housing, while also expanding the Production-Linked Investment (PLI) scheme to support the domestic manufacturing sector as well as generate employment, he added.
Damania does not expect any drastic changes from this Budget. "In today's day and age, several events go over and beyond the Budget. With GST coming in, the Budget has lost relevance as far as indirect taxes are concerned. The Railway Budget has merged with the main Budget, and the government has been adhering to a very consistent, normal tax regime that we do not expect to change drastically," he stated.
Prabhu highlighted that tax implications play an important part in an investor’s overall portfolio return and asset allocation. The impact of any major change in tax rates must be assessed by investors to understand the impact on the overall portfolio return. The government is known to be mindful of these impacts and would ensure implementation in a calibrated manner to ensure that changes, if any, will be in the best interest of investors, she added.