Budget-2020 Declared, whats now?

Budget 2020 was presented on Saturday, 1^st February. There have been lot of deliberations around it, whether it was a good, bad or an average budget. But such discussions initially create more heat and less light. It is only in the coming days that it’s impact will slowly unfolds that we realize its impact.

This budget had lot of expectations, but with no radical or reformist step taken, it failed to enthuse the markets. Generally, reactions on budget are not this severe, but that happens when economy is doing well on the whole. For an economy which is crawling at 4.5% growth, strong steps are needed to get it back on its feet.

Last budget, higher surcharge took the lime light as it impacted most of the market participants. This time, new tax structure took the hot seat. There was a huge expectation to rationalize personal income tax or provide any other incentive to push demand in the system. While steps have been taken, they seem to be too confusing for the tax payers.

Also, the fact that one will have to do away all the exemptions to take benefit of the new tax regime, punctured the sentiments around it. Interestingly, on rough calculation for the gross earnings from 5 lakhs to 11 lakhs the tax outflow under the new regime would be higher while gross income above that will have some tax benefit. The worst hit are insurance companies and surprisingly that is done at a time when government is looking to undertake IPO of LIC. The way it has been structured it becomes unclear how many tax payers will actually opt for the new regime. Because of this insurance companies were hurt and consumer stocks did not gain much.

With no focussed steps towards improvement of real estate, NBFCs, exports, housing, credit to PSU banks, increase credit off take, telecom sector, power sector, it seemed to lack any reforms which is the need of the hour. Investors got hurt as there was no change in LTCG, rather there is change in DDT which will hurt them. TDS on Mutual fund redemption further dampened the mood.

The annual Union Budget, was in a nutshell neutral to negative overall. Neutral because it did not initiate anything exciting for us to revisit our growth outlook. Negative because the expected tax breaks and push for growth did not come as forceful as expected.

So after the budget how does it look like now? Globally, Coronavirus dominates even as the Brits start a new life without the EU cover. Impeachment settled for now as the Republicans block new witness testimony. US 10yr dips to 1.5 as haven assets sought, gold still holding 1580ish. Results season has been mixed. Markets will take its own course of reviving, but the policies as of now are not helping in any way.

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