Markets Await Interim Budget With Bated Breath
The countdown to the interim budget (IB) for FY20 has begun. The time is ticking fast and, instead of months or weeks,one is talking in terms of days. The forth coming budget will be an ‘interim budget’ and not a regular Union budget. A full budget will be presented after the formation of the new government, following the general elections.
In a recent development, Piyush Goyal took charge as the interim Finance Minister, ahead of the budget presentation on February 1. As per reports, Goyal is likely to announce the interim budget on February 1 and all eyes will be on the budget to see if the government decides to present a populist budget ahead of the 2019 general elections. At the global level as well, all eyes will be set on the budget as it comes at a time when the world is grappling with issues like slow down in growth of the Chinese economy and the anxiety surrounding the SinoUS trade war.
Let’s look at the key things that are expected from the budget. FM Arun Jaitely in the budget speech of 2018 reintroduced the long-term capital gain(LTCG) tax on gains arising from stocks and equity mutual funds if held for more than a year. On the wish list of the equity markets, the first and foremost thing would be that the government should relook at the LTCG tax on stocks. One thing is certain that the LTCG tax has not contributed much to the government revenues and if the government decides to scrap the LTCG tax, it would be a big sentimental boost for the stock markets. Tax payers will also look forward for an amendment in Section 80C.The issue with Section 80C is that the exemption limit has not kept pace with the changing income levels. The limit has stagnated at Rs 1.50 lakh level for too long and needs to be increased. Also, since the fiscal deficit is a key barometer of the overall health of the economy, it needs to be kept under control. The stock markets will certainly give a thumbs-up if the fiscal deficit is handled responsibly.
During the week, the US-China trade worries flared up after reports emerged that the White House cancelled a trade planning meeting with Beijing. This news certainly created a panic-like situation in the international markets. However, the US economic advisor Larry Kudlow refuted the report.
Since mid-December 2018, the equity markets have moved in a range and no clear directional move has emerged. Certainly, the market players would expect the markets to shift gears as we head towardthe most-watched event in India. It remains to be seen if the interim budgetfor FY20 turns the tide for the listless markets in the coming weeks.
The table shows the movement of VIX one month pre-budget and one month post-budget over the last 5 years. The table shows the movement of Nifty index one month pre-budget and one month postbudget over the last 5 years.
The table clearly suggests that four out of five times a big movement is seen in the index one month post-budget.
