Nirmal Jain, Chairman, IIFL Group: Despite taxes, long-term Indian market story remains intact

Nirmal Jain, Founder and Chairman, IIFL Group, deciphers the Budget 2018 and shares the outlook on the roadmap ahead.

What is your take on the budget as far as Equity and Capital market is concerned?

Most market participants were focused primarily on long-term capital gains tax. We saw a significant price correction in small and mid-cap stocks in the run-up to the budget. That is a very narrow way to look at impact of budget provisions on the economy and capital markets. Long-term capital gains (LTCG) tax has come back and with a few clever provisions.

The grandfathering of gains till January 31, 2018; makes no difference to sale or purchase before or after the budget. In fact, stocks purchased before the budget, may better be held at least for a year to take advantage of tax exemption. Also, the finance minister has done away with indexation, to simplify as well as increase revenue. The indexation was relevant in high inflation era.

There is merit in the argument that investors making windfall gains on stocks should pay taxes. However, the perennial problem with Indian tax structure is multiplicity and complexity of the taxes. Security Transaction Tax (STT) was introduced in lieu of lower capital gains taxes. There is no reason for STT to continue.

How different is the current budget when compared to the previous year?

There is much hue and cry about fiscal slippages. For the year 2017-18, revised estimate for fiscal deficit target has exceeded the budget estimate of 3.2 per cent to 3.5 per cent of Gross Domestic Product (GDP). In absolute terms, fiscal deficit is higher by Rs 48,318 crore. We should look at this in the light of revenue expenditure increasing by Rs 1,07,371 crore primarily due to higher compensation to states for Good and Services Tax (GST) and implementation of the 7th Pay Commission salary hikes. Given growth imperatives, reduction in deficit by further 20 basis point (1bps is equal to 0.01 per cent) is not bad at all, even though it is 30 bps more than the target set four years ago.

Many agree that it is quite a rural-centric budget. What are your views?

It was expected that there would be a strong focus on rural and agriculture sector. Nominal income of the agriculture sector has hardly grown in the last three years.

In our zeal for stock markets and global business, we should not forget the farmers. They brought this fact to the notice of our government in Gujarat elections. The proposed hike in Minimum Support Price (MSP) was much-needed. Interestingly, higher income in the hands of farmers would boost consumption as well as demand for rural housing. There are several other initiatives for rural sectors such as rural market, operation green, and husbandry sector.

Budget envisages major jump in loans to self-help women groups and also spending on schemes like Ujwala, Saubhagya and Swachh mission for LPG connection, electricity and toilets respectively. The Budget provision for Rs 14.34 lakh crore for rural infrastructure, if spent well, will make some positive difference to our rural folks.

What should be the target of an average investor?

For stock markets, there are stronger underlying bullish currents. Global markets are in upswing. Domestic investors, although not happy with long-term capital gains tax, have hardly any alternatives but to continue investing in mutual funds or Systematic Investment Plans (SIPs).

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