The economic health of a country is measured greatly by the performance of its markets, particularly its share market. In particular, with a developing economy like that of India, the share market has an integral role to play. The fluctuating state of the country’s economic conditions are reflected best by the upward and downward trend in prices on the share market.
While the share market is an accurate indicator of the economy’s growth, it is itself influenced by a variety of factors. However, none of these factors have as much of an impact on the share market as the year’s Union Budget announcements. This year is no different. With the recent announcements from Budget 2020, the financial markets in general and the share market in particular, have immediately experienced a significant impact.
With the country in the midst of an economic slowdown across a few industries, the Budget 2020 was a disclosure anticipated more than ever by share market participants. Has the Budget 2020 met these expectations? Let us begin by reviewing the market’s expectations:
Share Market Expectations from Budget 2020
- – In 2019, despite the slow growth and low investments, the share markets performed relatively well. However,with the Budget 2020, the main expectation was to help bolster investment by increasing cash in hand for potential and current investors.
- – There was also an expectation that the Long Term Capital Gains, or LTCG tax will be either reduced or scrapped entirely. This would go a long way in improving returns for investors in equity and help their wealth creation efforts.
- – Rural demand also plays a huge part in market performances with it being a driver for companies in FMCG (Fast Moving Consumer Goods) to the auto industry. Therefore, Budget 2020was also expected to increase rural spending and provide farmers with higher incomes to facilitate consumption.
- – To stimulate the share market, it was also expected that the taxes on dividends and buybacks in the hands of the investors be scrapped. There is a 20% tax on the buyback of shares and as a result, investors receive less payouts than they strive for. This taxation liability decreases their net return and discourages market participation.
- – The performance of individual sectors and industries has an overall impact on the share market. With the various sectors experiencing significant slowdowns, industry-specific announcements were expected to uplift these sectors and stimulate the markets.
Share Market Impact After Budget 2020 The following are some of the announcements of the Budget 2020 as well as their overall impact on the share market:
- – On the day of the Budget announcements, the key indices fell by a considerable margin. The Sensex ended with a loss of 988 points (or 2.43 per cent), and ended the day at 39,736 points. Also, the Nifty50 plunged by 300 points (or 2.51 per cent).
- – It is estimated that investor wealth, worth all listed shares on the Bombay Stock Exchange, was lost to the tune of approx. Rs. 3.54 lakh crores. However, in response, Finance Minister Nirmala Sitharaman said on the matter, “I would wait for a full working day for a reaction of the stock market. Much of what we have said in the budget would definitely have a positive impact on the stock market… I am confident on Monday, markets will open positive owing to our efforts. [3]”
- – The Budget 2020did not include announcements for any direct sector-specific policies that could help uplift struggling sectors from the current slowdown. In response, the Finance Minister has stated, “Our approach has been broadly to look at the economy as a whole for both short term consumption requirement and for long term investment requirement so as to lay the foundation for the next four or five years”.
- – The share marketalso experienced disappointment as there was no reduction or abolition of the LTCG tax, which has been seen as a major investment roadblock.
- – As for rural demand, the budget allocated for agriculture for 2020-21 is 3% higher than the previous year and amounts to approx. Rs. 13,ooo crores. However, the new Budget does not include provisions to boost rural demand by raising farmer income.
Conclusion : As an investor or a potential investor, the post-budget period might seem quite volatile. Every financial year brings with it certain share market expectations, out of which some are fulfilled while others are not. However, despite the disappointments, the market is expected to absorb the volatility. Provided you have the right brokerage and guidance at your service, investment in the market can continue to be a viable wealth creation method.
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