Mumbai: The equity markets gave a big thumps-up to the Union Budget with the Nifty climbing above the 8,700 level mark for the first time since October 2016 after the budget left the long term capital gains (LTCG) and the securities transaction tax (STT) unchanged.
There was strong speculation about an increase in tax on securities market transaction after Prime Minister Narendra Modi in December asked stock market participants to contribute more towards the nation building exercise. Market participants also expected an increase in service tax to 18 per cent, which didn’t come through triggering a relief rally on the domestic bourses.
The Sensex vaulted 485.68 points or 1.76 per cent to end the day at 28,141.64 while the broader 50-share Nifty climbed 155.10 points or 1.81 per cent to end the day at 8,716.40. “On the taxation front, three strong positives came in the form of reduction of corporate tax to 25 per cent for small business, no service tax hike and no increase in holding period for availing long-term capital gain tax in shares. On the contrary, the budget reduced the holding period of long-term capital gains tax on immovable property to two years compared to three years practiced presently.
The budget responsibly refrained from any significant changes in indirect taxes as it prepares for GST implementation in the middle of the year. With digitalisation and simplification of tax administration, the government is expecting a significant jump in personal tax collection,” said Navneet Munot, chief investment officer, SBI Mutual Fund. The increase in allocation towards infrastructure and greater thrust on improving irrigation, rural connectivity and agricultural productivity along with a slew of measures to boost the affordable housing segment buoyed investors sentiments towards consumption stocks like auto, FMCG and real estate sector.
The markets believe that the budget measures would help in reviving the consumption growth that was impacted due to cash crunch post demonetisation. The shares of Realty major DLF Ltd and Oberoi Realty gained 6.74 per cent and 6.38 per cent respectively while the shares of auto giants like Maruti and M&M soared 4.69 per cent and 4.64 per cent respectively. The budget’s plan to infuse additional capital of Rs 10,000 crore for the recapitalisation of public sector banks and proposals to strengthen the existing debt recovery mechanism to resolve non performing assets (NPA) in the system sparked a strong rally in financial sector stocks.
While the stock of ICICI Bank surged 4.40 per cent, the shares of SBI gained 3.96 per cent on the Bombay Stock Exchange. Additionally, the budget proposal to abolish Foreign Investment Promotion Board and further liberalise the FDI regulations helped the markets to maintain momentum.
Top 5 stocks to look for in 2017:
Sadbhav Engineering
Increase in outlay for infrastructure reconfirms the government’s focus on building road infrastructure where companies like Sadbhav Engineering are set to benefit.
Godrej Properties
If this budget was beneficial for a specific sector – then it is the Real Estate. Demonetisation and RERA also have been beneficial for organised developers like Godrej Properties.
Praj Industries
Its growing share of emerging business like high purity systems (PHS), critical process equipment system (CPES) and water and wastewater treatment systems is expected to drive growth.
Jain irrigation
It is the largest player in organised micro-irrigation sector, with a market share of 55 per cent.
Ashok Leyland
With focus on infrastructure, one can expect good demand for commercial vehicles. Replacement demand due to impending scrapping policy is expected to drive sales.
—By Ambareesh Baliga, senior research analyst.
