Equities to be more attractive vs cryptos, say experts post Budget 2022 announcements. Here's why
Premium- The government will introduce ‘digital rupee’ and impose a 30% tax on profits from virtual assets like cryptocurrencies
Finance Minister Nirmala Sitharaman unveiled a Budget on Tuesday that stepped up investment on highways and affordable housing to put growth on a firmer footing as Indian economy recovers from the pandemic. She said that the government will introduce ‘digital rupee’ and impose a 30% tax on profits from virtual assets like cryptocurrencies.
The decision to levy 30% tax on profits from digital asset transactions, including cryptocurrencies and non-fungible tokens, may rule out a blanket ban on such tokens for now but it will make trading in them less profitable, as per experts.
“On the tax front the simplification on Long-Term Capital Gains (LTCG) would be a key feature. Taxation on virtual assets will also make equity more attractive, especially to the millennials. The spend on capex is clearly the highlight of the budget, crossing 7 trillion rupee level is a key initiative to boost the capex cycle," said Anoop Bhaskar, Head - Equity, IDFC AMC.
Aside from placing earnings from cryptocurrencies and non-fungible tokens (NFTs) in India's highest tax band, Sitharaman also said losses from their sale could not be offset against other income, delivering another disincentive to trading and investment in digital assets.
“The announcement of tax at 30% on digital assets, coupled with the government launching its own digital currency, is an indication the government intends to discourage it and that only high-net-worth individuals (HNI) could make such investments and that the centre shall not permit cryptos as a currency," said Sundara Rajan, Partner at DVS Advisors.
"On Budget 2022's impact on capital markets and mutual fund (MF) investments, we will see some tailwinds building up for manufacturing, housing, infra-led sectors, etc. With the big borrowing program in store for government this year, this could lead to some more volatility and further hardening of bond yields and deficit targets could be affected," said Tarun Birani - Founder and CEO - TBNG Capital Advisors.
Some over-valued pockets could correct, and it will continue to be a bottom-up stock pickers’ market. For long-term investors, this could be a great year to load up on high-quality companies, Birani added.
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