Sunil Singhania, Founder, Abakkus Asset Manager
The government has leeway to boost market sentiment by tinkering with personal taxation in the Budget. This will lead to higher income in the hands of consumers. It can also slash long-term capital gains tax. On the policy side, it can increase planned expenditure on infrastructure. This may lead to a slight increase in fiscal deficit but the market has already discounted for slippage of the target. Even if there is temporary slippage to boost the economy, there won’t be an adverse impact on the market. If the economy starts to do well then it will help in narrowing the fiscal deficit as revenue would increase. Further, an increase in food inflation won’t put any constraint on the government’s ability to present a good Budget. In fact, food inflation will improve farm income and the rural economy will pick up pace. As India has one of the highest real rates in the world, inflation has to inch up a little or interest rate has to come down further. Once economic growth revives, investors will realise the disparity in the market and that might spur a broad rally.
Amit Mantri, Co-founder, 2Point2 Capital
Investors are expecting that the Budget will try to boost demand through measures like personal tax cut. But this is very difficult because the government doesn’t have much space on the fiscal side. I would be surprised if we don’t see increased taxation over the next few months – be it via GST, or on fuel or cigarettes. I expect overall taxation to go up rather than come down because of the weak fiscal position. While the prevalent view is that the government might trade-off a higher fiscal deficit to revive growth, it’s not necessary that it will result in a stock market rally. A higher fiscal deficit may also have a negative impact on our credit rating and cost of borrowing, which will impact corporate profitability. Over the past few weeks, the expectation of personal tax cuts and measures to boost the economy are already getting built into the market and hence the Nifty is at an all-time high. I am not sure how much more the government can do and would prefer to keep low expectations.