Deena Mehta, MD, Asit C Mehta Investment Interrmediates Limited

The technical correction seen in the market today has been viewed as a negative reaction to the budget. Markets work on expectations, a big event and expectations build up, the event is over and the reaction is not in relation to the facts of the event but on whether the expectations were met or not.

What did not happen? Direct tax rates did not go down for corporates, but there was removal of fringe benefit tax (FBT). Minimum alternate tax (MAT) was increased from 10% to 15%, but tax holidays which were expiring next year have been extended for one more year. Securities transaction tax (STT) was not reduced. That was bad. The transaction costs in India continue to be one of the highest in the world. Individual tax payers did get a relief, in terms of removal of surcharge on income and increase in basic exemption levels. Small traders now need not maintain books of account nor pay advance tax. They can just pay 8% of their income once a year at the time of filing their returns.

Disinvestment was expected on a large scale. But the possibility is not ruled out. If the government can increase price of petrol before the budget, it can also make changes in disinvestment policy before the budget is passed. The government is talking of reducing fiscal deficit only next year. This year it wants to continue with government spending to keep the growth momentum. This government is going to remain for next five years, hence this is not the last we have heard on disinvestment.

Several reliefs have been given to the new pension scheme. This is a pension scheme for people working in unorganised sectors ie persons who do not save in provident and pension fund. These pension finds investments will not be subject to any tax on trading profits, their will be no STT and no tax on distribution of dividends. These sops make the investment in new pension scheme superior to investment in mutual funds. This is a very good long-term move for the markets, since pension funds will be find investments in stock markets very attractive.

What does an investor do in such circumstances? Will the markets worsen? Is it a good time to buy? The government is committed to reforms and several ministries are talking about 100 day reforms programme. Hence, lots of positive announcements are expected from the government. The market is technically weak so say the chartist, wait. However, I would advise that at least 50% of the investments that you want to make should be made. Look at individual value picks rather than the index. The budget predicts increase in corporate earnings, hence in 6-12 months your investments should give a positive yield curve.