One More To Bingo

The budget proposal to impose 15 per cent short-term capital gains tax—applicable to investments in stocks, equity and equity-oriented balanced funds held for less than a year—will hit investors who were lured by the thoughts of quick profits from stockmarkets that gave absolute returns of 214 per cent over the last four years. Now, the finance minister has put in a strong incentive for investors in these categories to stay invested for at least a year. Ideally, the investments in these options requires investment periods of 10 years or more to have a high probability of great returns and to even out the high front-end costs.

The budget hasn't done anything directly beneficial for investors in property, which has given returns of more than 20-25 per cent annually in the last four years. However, there could be some indirect impact from the increased allocation for Jawaharlal Nehru National Urban Renewal Mission (JNNURM), a programme overseeing the establishment and upgradation of urban infrastructure in 63 Indian cities. The substantially higher provision of Rs 6,866 crore in 2008-09, up from Rs 5,482 crore in 2007-08, could bolster investment prospects in smaller cities such as Bhopal, Thiruvananthapuram, Bhubaneshwar, Ludhiana and Vizag. Away from the large metros with expensive real estate, these cities—which are expected to witness development driven by activities in IT, bpo, retail and tourism sectors—will still be attractive investment bets.

When it comes to gold, the budget has done little to change the situation for investing in the yellow metal. It still looks attractive, having recently touched an all-time high of Rs 12,000 per 10 gram and looks quite good for the next year—the volatility in the stockmarkets world over making investors opt for it. If you were expecting the budget to do something to bolster the flagging fortunes of the stockmarket, which also seems to be afflicted with the global contagion of manic mood swings, you are bound to be disappointed—the FM's focus this time was clearly on agriculture and infrastructure. Not surprisingly, the Sensex lost 245 points at the end of budget day.

But the budget had positives for stocks in certain sectors. Perhaps the gains will accrue to these sectors in the near future. Leading the pack of gainers from the budget are auto and auto ancillary companies who are set to see sales grow due to cuts in excise duty from 16 per cent to 12 per cent for small cars, buses, two- and three-wheelers. The pharmaceutical industry is likely to benefit from excise cuts. Increased government expenditure in agriculture, loan waivers for farmers, rejigging of income tax slabs should help FMCG companies, that thanks to higher consumer spending.

The last four years have been like one long party for Indian retail investors. Signs of weakening sentiments in the stockmarket, persistently high inflation, slowing industrial growth were some of the factors that were threatening to become party-poopers. The budget was a great opportunity for the finance minister to keep the good times rolling. Only the coming days will tell whether the democracy dividend will be enough to keep the party rocking.