The Sensex has lost 22 per cent since hitting historic highs in March 2015. Stock market Investors have hardly made money in the last 2 years, since the Narendra Modi government took charge and would have been better-off in bank deposits.
Unlike the previous Union Budgets, which have seen euphoria ahead of the Union Budget, we hardly see anything of that sort these last few years.
The reason for that is simple: Foreign Portfolio Investors continue to be the biggest investors in the Indian stock markets and their decisions are mostly based on what happens abroad. A crude price drop, means there is instant selling across the globe and so with any bad data from China.
Just study the Sensex trend in this week. When the international markets rallied, stock markets in India rallied. No matter what the local event is, markets are glued to developments abroad.
Expectations from the Union Budget 2016 from investors
Unless the Union Budget 2016 is pathbreaking, expect no rally. In fact, there is absolutely no scope for disappointment, given that international cues are weak. The Sensex has already lost 22 per cent from peak levels seen in March last year. To restore confidence the government can do the following:
Reduction in securities transaction tax
At present every time you buy and sell shares there is a Securities Transaction Tax (STT). There are hopes that this could be reduced from 0.10 per cent to slightly lower. This could be a morale booster for the stock market, but, we are not sure if it would come through. This is because, the government's finances are likely to be strained given OROP implementation and also 7th pay commission.
Capital gains tax on shares
There are reports that the capital gains tax on stocks would be increased to 3 years from 1 year. This is to encourage long term investing in the markets. However, if this is tinkered with, it could lead to heavy short term selling pressure in the markets.
Reduction in dividend distribution tax
The government to boost investor sentiment could also consider, a reduction in dividend distribution tax. However, given the obsession to keep the fiscal deficit in check, it is unlikely that this would be possible.
Do not expect to much from the Union Budget 2016. If you have bought shares at higher levels, you have no choice, but to hang onto them. The Union Budget may come and go. If markets fall after the event, look at opportunities to buy.