Can’t expect relief for market this yr: Mukherjea

The finance minister has already done much through July, August, September last year and there is very little left to say in the Budget, says Saurabh Mukherjea, Founder, Marcellus Investment Managers.

In the last three Budgets, the stock market got nothing. Rather, in 2018 there was LTCG, then came taxation on buyback and then taxation on dividend at the end of receiver. So from a market standpoint, the Budget has not really been very kind?
We will see the continuation of that today as a) all the experts are saying the fiscal space is severely constrained; and b) the challenge in Indian politics. If the government is kind to the markets, it is exposed to the charge of being suit boot ke sarkar. So both from a political optics perspective and from a fiscal constraint perspective, it is very difficult for the government to show kindness to the stock market.

The best we can hope for is we do not get further hikes on LTCG and taxes on the rich. Given that they need a hefty disinvestment target, my reckoning is that for the Rs 3 trillion disinvestment target, they need to push through heavy duty disinvestment and privatisation and stake sales and hopefully they would not do anything to dampen the stock market. But I agree with you that this sort of obsessive focus on the Budget from the stock market perspective is a little beside the point. The stock markets now exist in a way independent of the Budget. Plus, to give credit to the FM, she has already done so much through July, August, September last year that there is very little left to say in the Budget.

Let us look at the three most important assumptions; the first is going to be assumption on tax collections, second fiscal deficit number and third the disinvestment number. Which numbers do you think would be realistic?
So let us start with the disinvestment. We have had a Rs 2 trillion type number for a few years. For obvious reasons, that number was not met or even approached in the current fiscal given the amount of money that the government needs, revenues that they need to raise plus given that they mentioned BPCL,

a year or so ago, I reckon they will gun for a Rs 3 trillion disinvestment target and you have got good assets on the table.

There could be an LIC IPO, a CONCOR disinvestment, a BPCL disinvestment and whatever we can get from Air India etc. But that would not be a hefty amount. So at least to set the expectations right, the government is likely to go for a big figure like Rs 3 trillion/

On deficit, they will be careful about not creating needless angst in the FII community and especially the bond investor community for having a very high deficit target for next year. I reckon they will say 6% target for the next fiscal. The out turn will be anybody’s guess but they will be very restrained that they do not have a target with a 6% or perhaps even 5.5% handle. There is no benefit in setting a 7% budget deficit target for the next year.

On the assumption of tax growth they will take a cue from the CEA. CEA, IMF — all are talking about a real GDP growth of 11% and 4-5% inflation we are looking at 15-16% nominal GDP growth. If you ally that to corporate profitability bouncing back post Covid, I do not see why they should not have a corporate tax collection number of around 20%. GST is doing the job for them, GST numbers are gunning along quite nicely. They will bump up the GST number by 10-15%. It would be wise to expect 20% growth in corporate tax collections.

Even the December quarter numbers, without a favourable base effect, are showing earnings growth of 15-25% for several large companies — UltraTech, TCS, HDFC Bank, Asian Paints etc. So once the base effect turns favourable from April, May, June onwards, there will be a 20% growth in corporate tax collections, mid teens growth in GST and hence I think somewhere between those two, the total revenue collection growth number.

On the taxation front, the last three consecutive years have had something negative for market participants. Will the finance minister let go off any taxation on market participants this time or is there an expectation of some tweak here and there?
Expecting relief for the stock market in a year like this will be a little excessive. The best we can hope for is we do not get further taxation on the stock market, especially on the long term capital gains tax number. If we see that, it will be a near term dampener.

The main reason I do not think the FM will try to whack the stock market with higher LTCG at this juncture is the disinvestment point. The government needs to expedite heavy disinvestment. This is probably the last Budget they will get without major state elections. I know we have Tamil Nadu and West Bengal, but the heavy duty state assembly elections will start in the next fiscal and this is probably the last chance to shore up the fisc before we enter the heavy duty end of the political cycle.

So my hope is that because of the need to disinvest heavily, the government will not hurt the stock markets with higher taxes this time.

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