"The market does not trade upon what
everybody knows, but upon what those with the best information can
foresee" – William Hamilton
Budget is an annual exercise by union government to present it’s
sources and application of funds. Sources include taxes and non-tax revenue
that accrues to the government and planned borrowings. Application reflects
areas where government will spend its sources and the same includes capital and
non-capital expenditures.
As an investor it becomes important to know the provisions of the
budget to the extent that one can plan his income & investments to receive
higher post tax income in hand. All other provisions of the budget are not of
much relevance to an investor except to know and understand how the budget will
impact the economic activity in the country.
In our earlier communications we had stated that very high
expectations have been set from the budget which for any Finance Minister will
be near impossible to fulfill. We maintain our preliminary assessment of the
budget – it is an expansionary budget and will increase consumption but its overall
impact on growth of economy will not be that great. Sharp fall in stock markets
were not confined to just Indian markets, it spread across all major global
markets owing to various global events. So that do not reflect the market
reaction to budget. And again such reaction is only for short term, for long
term we need to look at the strength of the economy.
Let’s understand how we should plan our investments in the light of
provisions of the new budget.
Old Vs New Tax Regime: In the old tax regime majorly following tax provisions were being
used to save taxes that are done away with in the new tax regime:
a.
Section 80C provisions of
deduction upto Rs.1,50,000/-
b.
Section 80D provisions of
deduction upto Rs. 50,000/-
c.
Interest on housing loan upto
Rs. 2,00,000/-
d.
Interest on Education loan to
the extent paid in a financial year
e.
Standard deduction for salaried
person upto Rs. 50,000/-
f.
House rent allowance received
by an employee – usually ranging between 10 – 35% of the basic salary depending
on the basic income, HRA received and rent paid.
So if you are a salaried employee availing all or some of the above provisions,
you will be better off in the old tax regime. It would only be for the
non-salaried class who will have to evaluate the two options and choose the
beneficial one – again depending on how many of above provisions you use.
Equity: Major indices namely Nifty & Sensex performed quite well over
last one year. But we were skeptical about this rally as it was a concentrated
one just revolving around 15-20 stocks with no major sign of economic revival. Off
late the market rally has started panning out over other large cap, mid-cap and
even small cap stocks. Economy has also started showing off
green shoots of revival. These are the indicators that as investor one must start increasing exposure towards
equity now.
Debt: With insurance on bank deposit increased to 5 lakhs, investors in
lower tax bracket can take advantage of the same by making fixed deposit with
smaller banks that are offering very high interest rates compare to large
settled banks. People in higher tax bracket should use listed bonds and debt
mutual funds to earn higher post tax returns. As far as interest rates are
concerned, we at InvestmentMitra feel that owing to pressure on consumer
inflation RBI will take a pause for further rate cut. In fact we fear if
inflation do run out of control, RBI may have to think otherwise.
Gold: Gold gave very good returns over last year. For the current year
with revival in equity markets that may be more pronounced in second half of
next fiscal, its performance may see some pressure. So we advise caution on
gold.
We at InvestmentMitra have always believed that best returns is just
a fancy idea. Your returns depend on your asset allocation that further depends
on your financial planning and risk appetite.
Do write to us at ajay@investmentmitra.com
for any query on your investment and financial planning.
Team InvestmentMitra
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