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Budget 2018 and its Possible Impact on Stock Market

The future movements in the markets over the next month or so will be decided by the contents of the Budget 2018.

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Anurag Khare
Last Updated : Jan 30 2018 | 11:20 PM IST
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Lately both the major indices in India has scaled record heights, the Sensex has crossed the 36000 mark whereas the Nifty has also breached the 11000 level.The future movements in the markets over the next month or so will be decided by the contents of the Budget 2018. Although in the period leading up to the Budget utmost secrecy is observed but some information does filter through, other than that rumours and informed speculations are also what that drives the sentiments of the markets. Generally there are negative sentiments and expectations attached to the Budget thus investors usually postpone buying decisions before the Budget is tabled. Thus in the past mostly the benchmark index has fallen in the month leading up to the Budget and the markets both Sensex and Nifty have seen gains after the Budget has been delivered. This has been the trend in six out of the last nine Budgets. But the said trend has now been broken with the markets touching new heights just before the Budget 2018. Few numbers in the Budget 2018 such as that of fiscal deficit and disinvestment targets will have a major impact on the direction of the bourses. Experts believe that the days leading up to the Budget the markets will see a rally due to various anticipations and right after the Budget profit booking in the stock market may be seen. However, there will be opportunities for investment in select sectors also.

Expected Impact of Budget 2018 on Stock Market
It is largely expected that the Budget 2018 will be neutral for the stock markets thus no sharp surge or dip in Indian indices is being expected. As the said Budget is the last full budget before the Lok Sabha elections in 2019 and before multiple assembly elections in 2018 no major reforms are expected to be undertaken. Experts believe that in the near future with record FII inflows, soaring investments in mutual fund, low interest rates and a strong rupee against the dollar the outlook in the markets is expected to remain positive. Although on the day of the Budget 2018 and the 48 to 72 hours period after the same the markets are expected to remain extremely volatile. In the Budget 2018 the markets would like to see a bump up in Government’s revenues to tackle fiscal deficit but most likely the fiscal deficit target of 3.2% of the GDP would be missed by the Government. The target is most likely to be revised to 3.4% which will have a somewhat negative impact on the markets. The markets also expect the government to pursue disinvestment agenda aggressively especially that of Air India. Relief in corporate tax rates and personal income tax along with stabilization of the Goods and Services Tax (GST) and increased public spending with focus on manufacturing, job creation and rural distress are some other key expectations of investors that will have a major impact on the markets.

Possible Reasons for Rise and Fall in the Markets after the Budget 2018
The FM most likely will try and strike a balance between popularism and fiscal prudence in the Budget 2018. The Indian market is already at historical highs so experts believe that even an industry friendly budget will have only a nominal impact. On the other hand if there are some dreadful surprises in the Budget 2018 then even a crash cannot be ruled out. One of the major decisions that the markets is hoping doesn’t materialise is the introduction of long-term capital gains tax (LTCG) on shares. It is believed that the government is mulling reintroduction of the said tax which will tax the profits earned from the sale of stocks that have been held for more than a certain period of time for instance 12 months. If the said happens expect the markets to react negatively for a couple of days before stabilizing. Another important factor is where the government would be able to arrest the fiscal deficit at. If the FM manages to keep the fiscal deficit at the earlier target of 3.2% it will send out a very positive message to the market. Other major factors that will affect the markets on the day of the Budget would be government’s disinvestment target, news about GST revenue collection, bank recapitalisation and more. Many other policy decisions and pointers such as cut in corporate tax rates and others will also decide the mood in the markets and thus its direction.

Stocks to watch out for after the Budget 2018
In the Budget 2018 Finance Minister Arun Jailtley is expected to have a special focus on certain sectors. These sectors are expected to get concessions and sops on the day of the Budget and thus scripts of companies from the said sectors are understood to perform bullish on and after the days the Budget is presented in the parliament. After recapitalization of PSBs further reforms in the banking sector are expected in the Budget thus banking stocks especially that of Public Sector Banks are ones to watch out for. The finance and insurance sectors have also lobbied hard for tax sops and increase in the limit of tax rebate if the said fructifies in the Budget 2018 then insurance and financial stocks are also expected to rally. Increased public spending is also expected on infrastructure building thus stocks of infrastructure companies and the ones related to the rail sector also have good potential. Multiple big ticket schemes are also expected in the Budget 2018 that will be catering to rural India. Government’s pet projects of doubling of Farmer’s income and Housing for All by 2022 are expected to kickoff in the Budget 2018 from rural India. Thus stocks having a rural theme are also the ones to watch out for. Finally sops are expected for the real estate sector in the Budget 2018 as well thus growth in stocks related to the said sector is also predicted.

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First Published: Jan 30 2018 | 11:20 PM IST

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