Stocks are going to be extremely volatile ahead of Union Budget 2017-18, as individuals do not know the likely recommendations of the Union Budget 2017. There is not much of an anticipation this year, though there are reports that suggest some adverse developments.
Here are a few reasons not to buy shares ahead of Union Budget 2017-18.
Taxes on capital gains on shares
In all likelihood we will see a change in capital gains norms for shares. Presently, shares do not attract a capital gains if they are sold after one year. On the other hand all other instruments like gold and real estate attract a capital gains tax. In these cases short term is defined as less than 3 years, while for shares it is just one year. Union Budget 2017-18 may either tax shares in the long term or change the definition for short to to three years. This could result in some serious selling pressure in the markets, it it happens.
GAAR and FIIs
Foreign portfolio investors are expecting clarity from the Union Budget 2017-18 on the General Anti Avoidance Rule (GAAR) provisions that will start in April, especially on whether it will take precedence over individual tax treaties such as those with Singapore or Mauritius. If it does, expect some sell-off from foreign portfolio investors in the Indian market.
Securities transaction tax on derivatives
In all probability we might see some increase in the securities transaction tax on derivatives. This might lead to some sell-off in the markets, as the derivatives segment is high value, high volume play.
Markets have run-up too much
In the last few weeks markets have run-up far too much and hence we may see some selling pressure that could now emerge. In fact, we pierced the levels of 27,000 with ease and are now above the 28,000 levels on the Sensex. Clearly, a time to now look at some selling pressure if the Union Budget fails to deliver.
Chances of buying at lower levels are bright
You may get an opportunity to buy shares at lower levels. The mantra has to be: "buy low and sell high" to make money.