GAURAV GARG
Stating that an inclusive, stimulating, and growth-oriented Budget will act as a cherry on the cake in driving market sentiments, an investment researcher added that now the investors expecting a lot from the Finance Minister.
Speaking with media, he said the stringent lockdown norms in India, supply chain disruption globally, and halt of economic activities have pushed India into a technical recession due to the corona virus outbreak. However, Reliance Industries and few IT and pharma giants catapulted the rally in benchmark indices initially and a huge inflow of foreign capital has supported the markets to sustain their rally.
An increase in India’s weightage by MSCI in their global Emerging Markets Index to 8.7 percent from 8.1 percent has further fuelled the optimism. Seven out of twelve months received inflows from foreign investors. The month of November has received the highest foreign inflows in the year amounting up to Rs. 65,317.13 crores. The benchmark indices gained around 14.58 percent on a YoY basis. Nifty recovered around 86.72 percent since its March lows in the year 2020.
With Finance Minister Nirmala Sitharaman’s promise of presenting the best budget, investors expecting a lot from her.
The Upcoming Union Budget 2021 will act as a cherry on the cake in driving the market sentiments and spread the investments across equity and debt fund categories. The investors & traders should expect the below from the market in 2021 ahead of Budget announcement, says Gaurav Garg, Head of research, CapitalVia Global Research Limited.
Budget expectations and its impact on market
The present scenario calls for a budget that is inclusive, stimulating, and growth-oriented. The prolonged lockdown in 2020 has taken a toll on GDP and plunged the economy into a technical recession. The street seems to be gauging the upcoming budget in line with the stimulus packages announced in the last calendar year. One can expect a fair amount of aid and relief to the priority and core sector, along with it. The banking sector must also be taken care of as the effect of the moratorium will be evident in the upcoming days, NPAs may prove to be a problem again and therefore this issue must also be considered.
The budget has always had an impact on the markets either long term or short term, but the upcoming Budget will be a crucial one with the humongous hopes of the investors and common people alike. If the Budget is not as perceived, then the market may correct itself significantly.
Equity Market View
The Indian benchmark indices have put up a stellar performance last year. Out of eleven months, Indian markets received net foreign inflows in seven months the previous year. Nifty generated more than 14 percent return. Indian market valuations seem expensive as of now. Therefore, there are possibilities for the benchmark to consolidate. We’re expecting a double-digit rally in Nifty by the end of 2021 on the back of increased retail participation, favourable policies by the government, demand resumption, and fresh foreign inflows. However, the pace of growth might not be the same as in 2020. Intermittent corrections cannot be ruled out as there is a risk of the new virus strain and thus sustenance of economic recovery holds the key.
Debt Market View
The bond prices raised in the year 2020 as RBI has cut the interest rates. So, debt mutual fund investments across the spectrum benefited. Long-dated bonds like gilt, long duration, and dynamic bond funds double-digit returns. The expectations should not be the same for the CY2021. The interest rate cycle has seemed to bottom out and the scope for further rate cuts is less because of rising inflation and higher government borrowing. Therefore, investors can gradually book profits from mutual funds holdings and long-dated bonds like gilt and long duration funds. Though interest rates may not fall further, they are not expected to rise any time soon either. Investors may look at corporate FDs and secondary market bonds for chasing slightly higher returns after considering the credit risk involved.
Commodity View
Relaxation on Commodity Transaction Tax (CTT)
India is a developing economy, and this is the fact that commodity exchanges are the most organized setups for the price discovery of the many agricultural commodities. In absence of commodity exchanges, there may be a gap between buyers’ and sellers’ expectations. Also, India has the potential to lead the world in determining the fair-market price for many commodities like Jeera (Unja), Soybean (Indore), Rubber (SouthIndia), etc.
There has been a lot of steps that had been taken to increase the participation of investors in the commodity market. FPI had been allowed in the Commodity market since2014 and Mutual funds were also allowed to launch dedicated commodity funds in2017. Lately, exchanges have also come with new products like options and indices.
Despite these measures, participation in the commodity market is low as compared to the equity market. In fact, we have seen a fall in trade volume in the commodity exchanges when the trade volumes have increased significantly in the equity market. To improve on this, the government might announce certain relaxation to the existing Commodity Transaction Tax (CTT) structure. To trade 1 lot of Copper (Contract value of around 15 lakhs, the margin required is around 71,000), CTT would be around Rs 150 and total taxes would be around 320 Rs which is highest in comparison to overseas exchanges.
This can be one of the reasons why traders are not involved in the formal trading ecosystem. Any relaxation on this would bring cheer to commodity traders and we can expect the shortfall of tax to be recovered through increased participation and volume.
Import duty on Gold
Import duty is very high on gold as compared to other industries and commodities. The industry is expecting the same to be placed at 7% so that formal and organized players are rewarded, and it can lead to a level playing field for them.
