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Bariings Kommera Chakradhar

Comment: On balance, a reasonably encouraging Indian Budget

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Kommera Chakradhar (KC) Reddy (pictured), Head of India Equities at Baring Asset Management Limited (London) summarises the impact of India’s latest Budget.

The surcharge on India’s corporate and personal income taxes was reduced to 7.5% from 10%. While this is not a huge tax cut, it is the first corporate tax reduction in six years.
Having seen stealth tax increases almost every year since 2004, their absence this year has been noted and welcomed. This signals that, for now, the government is keen to adopt a more market and economy-friendly posture.
However, this reduction in tax was funded by an increase in the Minimum Alternate Tax (Minimum Alternate Tax is a minimum corporate tax charged on any company. If your tax rate for the year under normal calculation is less than 18%, then you would pay 18% irrespective of what the actual percentage figure may be. If your actual rate is higher than 18%, then you would pay the actual rate). This tax rose to 18% from 15%. This will impact the information technology sector to some extent.
There was little increase in government subsidies and petrol and diesel prices have increased. This is another positive move because it signals that the government is no longer prepared to subsidise oil products. While the government is not subsidising petrol and diesel, they continue to subsidise cooking fuels.
Sectoral and stock impact: In our opinion, this was a positive budget for infrastructure, given the government’s commitment to increasing infrastructure spending. It was also positive for the automobile, financial services, property and power sectors, all areas we favour.
Positive market impact: The market’s reaction to the budget was positive, possibly partly due to its low expectations. Looking ahead, the ‘Nifty 50’ Index could trade towards the upper end of the 5,200-5,300 range in the short term. On a twelve-month view, we are reasonably optimistic but we are aware that a number of ‘Nifty 50’ index heavyweights face serious stock-specific headwinds which could limit the upside. The outlook for the broader market is more positive, with the mid cap area in particular looking attractive.

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