Market falls prey to uninspiring Budget, gives bottom fishing opportunity

Rajeev Srivastava

Benchmark indices witnessed sharp gains and touched an all-time high on January 20, but then it corrected sharply especially in the last week of the month on the backdrop of global weakness led by concerns over the outbreak of Coronavirus and resultant uncertainties.

Further, the Union Budget 2020-2021 also failed to deliver on high expectations as certain formidable measures or stimulus were highly expected from the government to spur consumption and boost economic growth.

Notably, Sensex lost ~990 points on the Budget day, eroding investor wealth by whopping Rs 3.5 lakh crore in a single day led by hefty FPIs selling.

The Union Budget 2020 once again proved to be a non-event, as the government missed the opportunity of fiscal relaxation, which would have given decent headroom for additional capital expenditure without disturbing the sentiment of domestic and overseas investors.

While 30-40bps relaxation in fiscal deficit was broadly expected, the government's conventional approach to strike a balance between economic growth and fiscal consolidation dragged the sentiment, as higher government spending was the only option as of now in order to address demand-side issues and encouraging private capex.

Even the allocation towards the infrastructure segment was not so high that could revive construction activities at a faster pace. More importantly, the government did not come up with any concrete measures to revive infrastructure activities in the county.

While 100% tax exemption on interest, capital gain, and dividend on infrastructure investment by Sovereign funds was a welcome move, the absence of initiative for fostering corporate bond market and reintroduction of infra bonds do not bode well for the sector.

Needless to mention, the revival of infrastructure and real estate has a far-reaching positive impact on several sectors, which entails a strong employment generation as well.

However, a relatively strong endeavour to revive the rural economy augurs well for the rural consumption, which considering 15-20 percent GDP contribution of agriculture and farming, it might not have a comprehensive impact on the economy in the near-to-medium term.

Whilst the abolition of Dividend Distribution Tax (DDT) was on the expected lines, it also raised concerns over higher dividend pay-outs hereon by the promoters of the companies, as it will have higher tax outgo at their personal level.

Nonetheless, a sharp fall in the market once again provides a bottom-fishing opportunity for the investors who missed participating in the recent rally, as the core fundamentals of the economy remain intact.

The Union Budget is not the only platform, where the government comes out with required measures or reforms, as it is an ongoing process for which the government continues to remain committed.

(The author is Head Retail Broking, Reliance Securities)