Veteran market expert Bharat Shah expressed disappointment over the Union Budget 2024's changes to capital gains tax, arguing that treating equities like other asset classes is flawed. He emphasised that equities are a crucial value-creating asset for households and inherently carry greater risk.
"Equities are clearly much, much higher up the ladder in terms of risk asset. And therefore, to harmonise the capital gains tax rate in the same way to some other asset probably is not the ideal comparison between the two asset classes," Shah, executive director at ASK Group said in an exclusive conversation with Moneycontrol.
Shah explained that since equity markets are among the greatest allocator of resources in the desired channel, it promotes both capital efficiency for investors and raises capital for the listed entities. Secondly, the asset needs to be prioritised as it is still meaningfully low at 6 percent of household assets - a figure that ideally needs to grow to at least 25-30 percent over a period of time.
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Further, Shah believes that since equities carry a greater degree of risk compared to other assets, the tax rates should have been in parity with that risk profile. "If you see mutual fund houses, when they buy or sell stocks, neither do they pay any short-term gains tax nor any long-term gains tax. However, the same asset held by an individual needs to pay short-term as well as long-term tax," he pointed out.
Given this context, Shah said that he would have preferred that the capital gains tax structure should have been kept unchanged for the time.
Commenting on which sectors he has been bullish on, Shah said that he preferred businesses that enjoy growth higher than GDP growth. "We are optimistic about energy, infrastructure, specialty manufacturing, and companies leveraging digitisation. Energy transition and infrastructure development offer significant growth opportunities. Additionally, businesses emphasising sustainable and circular economy practices are well-positioned for future growth," he added.
While the budget reflects a strategic approach, focusing on fiscal discipline and prioritising capital expenditure, Shah said that the tinkering of capital gains tax structure could have been avoided.
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