The equities market is one sector of the economy that anxiously awaits the Union Budget each year. Analysts, dealers, investors and fund managers all agree that the Union Budget has a larger-than-life influence on capital markets. Both direct and indirect effects are felt. Every year, the market is replete with anticipation, and this year is no exception as the Union Budget 2022-23 approaches.
Also Read| Budget 2022: Expectations from different sectoral Indices
- Here are some important equity market expectations for the Union Budget:
Reduce the long-term capital gains tax on equities to zero
When the Securities Transaction Tax (STT) was implemented in the Union Budget of 2004, it was assumed that it was adopted in place of LTCG. That was the situation until 2018 when LTCG on equities was added to STT. This is basically double taxation. More crucially, a 10% flat LTCG tax on shares worth more than Rs1 lakh per year applies to equity funds, which has consequences for long-term financial planning. The LTCG on equities is hoped to be phased out in the Union Budget 2022-23.
Also Read| Budget 2022: Finance Minister Nirmala Sitharaman to boost spending to aid economic growth
Elimination or reduction of dividend tax
Dividends on shares and equity funds are currently taxed at the maximum rate. Dividends are already a post-tax appropriation, therefore the true cost to investors is much greater. This was implemented in 2019 to replace the dividend distribution tax (DDT), however, the cascading effect is significant. The budget anticipates that the dividend tax will be repealed or, at the very least, reduced to a more manageable amount of 10%.
Also Read| Budget 2022 live updates: FM Nirmala Sitharaman to present Union Budget today
Elimination of the securities transaction tax (STT)
Over the years, FPIs have proved that the cost of trading in India is too high, with STT being one of the primary causes. The elimination of STT is projected to boost equities market volumes even further. However, empirical evidence suggests that following the implementation of STT, Indian stock market volumes increased rapidly. Furthermore, STT provides approximately $2 billion every year and is unlikely to be phased out.
Also Read| Union Budget 2022: A look at India’s most historic budgets
FPIs anticipate fiscal restraint or, at the very least, a fiscal timetable
Because of their vulnerability to high levels of fiscal imbalance, foreign investors have been sceptical of Indian markets. It was 9.4% in fiscal year 21, 6.8% in fiscal year 22, and probably 6.5% in fiscal year 23. COVID has increased the budget deficit, which is a worldwide occurrence. What foreign investors are looking for is a clear timeline for returning the fiscal deficit to 3.5% levels.
Also Read| Budget 2022: Meet Nirmala Sitharaman’s key team behind budget this year
Support for stock market valuation boosters
One recent tendency in the stock market has been that valuations are most favourable in futuristic company categories such as green energy, digital shift, electric automobiles, and so on. Much will be determined by how the government maintains its support for these value accretion stories in the Union Budget 2022.
