Equity Investors

 What they are expecting from Union Budget 2021 

With just the weekend to go for the Union Budget 2021, the Finance Minister sure has a tough job on hand. That, in no way, reduces the capacity of equity market investors to hope for the best. Here are a few key expectations. 

Continue the reforms process 

There is nothing more exciting for the equity investors than seeing economic reforms on the right path. The Budget is expected to focus on spending in a big way on infrastructure, give tax breaks for individuals and corporates and also boost the rural and urban demand. How will the revenues be generated for all these outlays? People are hoping that the entire concept of fiscal prudence will take a back seat for the time being. A detailed program of economic reforms will surely be positive for Indian equity markets, which needs good news. 

Leave more money with people 

The best way to boost equity markets is to put more money in the hands of the Indian investor. That can come in the form of doles, helicopter money, tax breaks, larger exemptions or the trickle-down effect of infrastructure spending. What is more important is that the budget does not leave at a macro level and delves into micros. A very broad based plan will not be of much help but the budget needs to ensure that the money actually reaches people and supports a revival in equity investing. 

Capital gains and dividends 

There have been a couple of budget announcements in the recent past which have not really enthused equity market investors. Long term capital gains are taxed at 10% above Rs.1 lakh at a flat rate without indexation. The Budget is expected to bring some concession in the form of scrapping the LTCG tax or raising the definition of long term from 1 year to 2 years. There is also a demand to continue to tax equities but exempt equity funds from LTCG tax. A similar arrangement is expected for dividends also where equity fund dividends would be exempt, since that is more of a distribution than an income. 

More exemptions, scrap STT 

Essentially, there are two things that investors are expecting in the budget. Firstly, Section 80C for ELSS funds is too generic. Budget can look at a dedicated segment consisting of only equity and equity funds to spread the equity cult. The budget can also attempt to bring back the erstwhile Section 54EC offering exemption on capital gains tax if the proceeds were invested in mutual funds with a lock-in period. Such moves can build more of stickiness in the portfolios of investors and also encourage them to stay longer in equities. Budget wants STT to be fully scrapped as it poses a big risk to the growth of market liquidity and exports volumes in equities abroad. This budget must make a big move!