Narendra Modi's goverment is all set to announce the financial budget for the upcoming financial year. This year , apart from traditional expectations, one has to account the impact of policies such as demonetization and GST bill as well. Here are some strategies that could proove to be beneficial for the equity markets, if implemented!
1. Revamping existing tax slabs: A large section of the population is expecting a revision in the existing tax slabs. Tax rate cuts will ultimately lead to a larger economy and since India needs to compete globally in terms of services provided with the revenue collected, the need of the hour is to to widen the existing tax base and lower the tax rates. Lower income tax rate raises a household's after-tax income which either leads to a rise in consumer spending or channelizes savings into avenues such as equity and insurance, helping the economy as a whole. Since the expectations of a raise in tax exemption rate is high, any move contrary to that may not go down very well with the markets.
2. Affordable housing: The 2016 Union Budget provided for some key reforms in the low cost housing space and offered additional tax rebates to individuals whose home loan sanctioned amount did not exceed Rs.35 lacs. We believe these additional benefits will be extended to the next fiscal year. As a result of demonetization, property prices have seen a correction. The rate cut regime followed by banks will make home loans cheaper providing impetus to the housing sector. The real estate industry will also benefit from the other Government initiatives like Pradhan Mantri Awas Yojna, Smart cities,etc.
3. Aid to Agriculture: The ramification of the demonetization move is likely to be seen by way of a drop in the GDP growth, with the Agriculture sector contributing to the slowdown since cash is the main mode of transaction. A large sector of the population is dependent on Agricultural income and the sector contributes towards creating more jobs and provides more sustainable income than all other sectors put together. As a result, it should form the prime area of focus with initiatives like providing overdraft facilities, disbursement of micro credits along with making easier access to different modes of cashless transactions to purchase agricultural essentials.
4. Accelerating the growth of key Infrastructure projects: The Government of India has initiated tons of key infrastructure projects across the country. These projects need to be accelerated further to meet the demand of the industries and common men. It's a known fact that expanding investments in the infrastructure space such as highways, ports, broad gauge railway lines, airports, and economic corridors can propel India's economic growth to a higher trajectory. The market will keep a keen eye on the kind of allocations made towards the Infra sector.
5. Boost to digital payments: Post the demonetization exercise, the Government has announced several sops for making payments through digital mediums like credit/debit cards including a discount of 0.75% on payments made at all state run oil companies. We believe there will be further measures announced in the upcoming budget with the Government's vision of moving towards a cashless economy and encouraging digital payments. The biggest benefactors of this move would be the telecom sector since there's dependency on Internet connectivity for most forms of digital payments. The plethora of opportunities that arise out of this move could revive an otherwise lull industry.