Union Budget 2015: Make equity investing more attractive: Motilal Oswal AMC

Aashish SomaiyaaMotilal Oswal Asset Management This is one of those truly ‘make-or-break’ ‘could-be-potentially-a-dream’ kind of budget!!! The equity markets are pricing significant expectations from the Government’s moves on the budgetary exercise and of course linked to it is potential recovery in economic performance and corporate earnings. Some of the things to my mind which the Government needs to address are related to maintaining the confidence of international investors both FDI and FII in nature because we need foreign investment in times when the Government is constrained to invest. Adhere to fiscal deficit target of 4.1% of GDP for FY15 and commit to the glide path to 3.6 in FY16 and 3.1 in FY17. Investors would expect them to commit on roll out dates for GST and if possible deference of General Anti Avoidance Rule or more specificity on it rather than blanket provisions giving unmitigated power to revenue officials. Similar is the concern on retrospective tax provisions although for now concerns arising from the Vodafone issue seems to have been assuaged. On subsidies it would be ideal to fix an overall limit to all outlays as a pre determined percentage of GDP. As regards reforms some innovative steps to boost infrastructure and jump start the capex cycle, this could include - tax sops/ enabling cheap capital through various measures and encouraging public funding/ enabling FDI investments/ concrete measures to encourage FDI and private investment in select areas such as railways and defense. At the same time I would caution readers that any announcements in infrastructure are more around clearing issues or about initiating new projects. Let’s not start thinking about a 2006-07 kind of Infrastructure boom and pile on to Infrastructure as a sector just because budget is around the corner!!! Back then, with power reforms, PPP models, NHAI, GQ etc. Infrastructure development was a novelty or a new theme. Not any longer! Expect to see major thrust on Make-In-India with multiple references to the theme. For instance, we could see some announcements for textiles, garments, electronics industry in line with Make in India theme.   There are also expectations on the popular steps with regards to Increase basic tax exemption limit from current 2.5lakh by 20-30% and tinkering with salary exemption limits for key deductibles to keep the salaried happy and increase disposable income. Sops for housing in areas of affordable housing or making housing accessible to middle class is on the cards. Lastly, I fervently hope that the Honorable Finance Minister does something to make equity investing relatively more attractive. Initiatives like removal of dividend distribution tax and also setting a requirement for some minimum dividend obligations by profit making corporate could increase retail participation significantly. As a nation, we need to do something dramatic to ensure we are owning India’s growth. Currently, we are at a situation whereby we are proud of India’s growth but we are enriching only foreigners through their holding of Indian equities! At last count over 80% of Indian equity was owned either by promoters or foreign investors, we Indians contribute 100% of the growth and participate in or own less than 20% of it!!! According to me, there is no greater priority than to start rectifying this situation.