Dalal Street, the nerve center of Mumbai, is usually a noisy place, with boisterous punters bustling about like busy bees. However, on Monday, 29th February, there was pin-drop silence throughout the locality. Investors were on tenterhooks that Arun Jaitley, NAMO’s right hand man, would indulge in the tomfoolery of imposing tax on long-term capital gains. Everyone knew that if Jaitley did that, it was game over for the Indian stock market.
Investors’ worst fears did come true when Jaitley announced that dividends in excess of Rs. 10 lakh would be taxed in the hands of shareholders (despite the fact that the paying company already pays corporate tax and DDT). At that stage, the Sensex plunged a massive 600+ points, causing severe palpitations to all investors. However, thereafter, there was a miraculous recovery. On Tuesday, the Sensex surged a massive 777 points while today, it kept pace with a surge of 463 points.
Some pundits like Porinju Veliyath were quick to announce that the Budget is a good one and that all woes have come to an end.
Market correction is over; India's structural bull market & high growth economy to gradually get back on to track!
— Porinju Veliyath (@porinju) March 2, 2016
However, whether Porinju’s optimism is based on an objective analysis of the macro-economic factors or whether it is a sentiment expressed instinctively and by force of habit is not known.
In the past, Porinju has demonstrated a penchant for making ultra-bullish predictions and so one has to take his sayings with a pinch of salt.
Saurabh Mukherjea was not at all impressed by the Budget. It is “nothing short of disappointing” he said in a scathing tone and added that the Budget is “no different than that of the UPA”.
Saurabh’s sore point appears to be that the capex, which had seen a 21% growth in last year’s budget, has been slashed to 4% in the current year. This will result in a flat growth for the economy, he opined.
“We still maintain our Sensex target at 22,000” Saurabh said in an ominous tone.
He added the grim warning that he would “lose his sleep” if money market rates keep tightening and if China keeps depreciating its currency.
Ajay Srivastava of Dimensions Consulting was also not impressed with the Budget. He warned that there are no “fundamental changes” ushered in by the Budget which warrants an optimistic view. He warned investors not to “jump into the fray” but to take advantage of the euphoria to rebalance their portfolio and get rid of junkyard stocks.
Daljeet Kohli is also circumspect about the situation. In his special report, Daljeet claimed that the Budget is “lacking provisions to spur growth & revive economy”. He said that he expected “out of box thinking” ideas on Bank recapitalization, providing impetus to capex cycle etc. “Our fear of budget being more populist than our expectations has actually played out” Daljeet lamented.
Daljeet also sounded a cautious note by stating “In the past many months our markets have been reeling under heavy selling pressure from FIIs. We do not believe this budget does anything to change that trajectory. It will neither increase nor decrease their selling meaning, no respite from pressure on markets. We do not see any major impact of this budget on corporate earnings, hence not much change in fundamentals”.
Raamdeo Agrawal appeared to be irritated with Jaitley’s quixotic proposal to tax dividends. He called it “triple taxation of profits” and said it is “highly avoidable”. He added that the measure would be “detrimental to small shareholders” because companies would now cut down on dividend payments.
The bottom line of the advice from the pundits, from the perspective of novice investors like you and me, is that we have to also be cautious and watch our backs. We must ensure that we don’t get carried away by over-optimism and we must be careful that we buy only the best quality stocks. Of course, as Ajay Srivastava advised, we must use the opportunity to palm off our junkyard stocks to our unsuspecting peers!