North Block looked baffled by Dalal Street's reaction to Budget on Saturday and it is hoping for the tide to turn on Monday. Niti Aayog's Rajiv Kumar says markets seem to have expected some big-bang reforms and some demand boosters, which would have made the government go for a large public expenditure, giving up on fiscal discipline. Analysts say circumstances demanded fiscal prudence married with cautious liberalisation, which the Budget did not recognise.
STREET PULSE: Where we stand Nifty futures on Singapore Exchange traded with deep cuts of over 300 points this morning, signalling a blood bath ahead on Dalal Street. MSCI's broadest index of Asia-Pacific shares outside Japan traded 0.5 per cent down, on track for an eighth straight day of losses.
HERE'S WHAT TO WATCH  | Japan's Nikkei stumbled 1.5 per cent and South Korea's KOSPI index was off 1.4 per cent Australia's benchmark index was down 0.7 per cent, while New Zealand shares fell 1.8 per cent. |
| US stocks tumbled on Friday, with the Dow and S&P 500 index recording their biggest one-day falls since August.Dow ended 603 points lower at 28,256, S&P500 lost 58 points to 3,225 and the Nasdaq 148 points to 9,150. |
| Crude oil futures skidded on concerns the coronavirus outbreak would hit China's oil demand. Brent crude slid $1.06 to $55.56 a barrel, the lowest since January 2019. US crude slipped 84 cents to $50.72 a barrel. |
| The rupee on Friday surged by 26 paise to end at 71.32 against the US dollar, buoyed by the Economic Survey projecting a revival in economic growth next fiscal. |
| WHO'S |  |
Carnage Ahead in Stocks… Indian markets are likely to see a spillover of Saturday's Budget day blues into the new week and thereafter as the perceived lack of measures to stimulate the economy appears to have dashed investor hopes of a rapid economic recovery. Sensex and Nifty could drop by 3-5% in a month, according to the majority of those polled in an ET survey of 22 money managers and heads of research at various brokerages conducted after the Budget. Besides, China's coronavirus outbreak continues to cast a shadow on the global markets. Most poll participants are more sanguine about market prospects by December, with 45% of them forecasting the Nifty at 13,000 at year-end, about 11% above Saturday's close of 11,662 points.
Read More FPIs in for a Big Hit… FPIs structured as trusts and association of persons (AoPs) may fall victim to the law of unintended consequences once again, thanks to the abolition of the dividend distribution tax in the Budget, some experts said. With dividends to be taxed in the hands of investors, FPIs structured as trusts will have a total liability of 28.5% on account of them. This includes 20% tax on dividends received, 37% surcharge and 4% educational cess. Those structured as corporates will only need to pay 20% tax on dividends received. Further, such an FPI can seek benefits through tax treaties, which could reduce the tax to as low as 10%.
Read More Banks Count Extra Cost... Banks may have to contend with slightly higher operating costs after the Budget raised five-fold the cover on fixed deposits held by savers, with proposals to include the profitability risks of individual lenders in their premium liabilities to make the process more equitable and fair. The budget Saturday raised the cover guaranteed by the Deposit Insurance and Credit Guarantee Corp to Rs 5 lakh from Rs 1 lakh. Banks pay a half-yearly premium to the DICGC for insuring the deposits of their account holders based on their total assessable deposits.
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Dividend Bonanza Coming... Companies with high promoter holding are likely to announce high interim dividends in March before the new Budget proposal, which makes dividend income taxable in the hands of the recipient, takes effect from April. Most promoter-owners hold equity individually or in trusts, and are in the upper tax bracket. So, they will now have to pay 43% tax on dividends from April 1.
Read More Bonds Rally Ahead... Indian bond yields could decline in the short run and the rupee may limit its weakness against the dollar, with Budget announcements on restraining the fiscal gap and allowing offshore purchases of some categories of sovereign bonds likely to draw more global investors to Mumbai. Bonds might find support from the federal move to open up sovereign bond sales, although the details of the proposal are awaited. The move is seen as a precursor to India's inclusion in the global bond index.
Read More Headed for Lower Tax Regime… Finance Minister Nirmala Sitharaman said the idea behind the new regime unveiled in her Budget is to "eventually move towards lower tax and remove exemptions." At a media briefing on Sunday, she said, "We have made cuts for the middle class, lower middle class… The idea is to eventually move towards tax rates (that are) significantly lower than prevalent today; a regime simpler to comply (with); and (to) remove exemptions."
Read More Meanwhile... No Taxing NRIs… The government said it doesn't intend to tax income that bona fide workers earn overseas, allaying concerns about a budget proposal relating to non-resident Indians (NRIs) that said those who weren't taxed in another country were liable to pay tax in India. This had caused Indians working in the West Asia to panic as many countries in the region don't levy income tax. The government said the provision was an "anti-abuse" one and will only apply to income that is generated locally.
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