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The Budget and the Stock Market Thursday, March 1, 2001
The Budget holds many
positives for the stock market which could provide short term triggers.The major announcements
include:
The drastic cut in small savings
rate by 150 bps will reduce the attractiveness of public/ bank deposits and
hence, help channel money into equities.
Cut in dividend tax rate from
20% to 10% will help companies, especially with high dividend payouts.
Hike in FII investment ceiling
from 40% to 49% could trigger fresh buying in FII fancied stocks like
Infosys and HDFC. Moreover, it would improve India’s weight in the widely
followed MSCI Emerging Markets Index, thereby channeling fresh investments.
Removal of surcharge on
corporate tax would boost corporate bottomlines, especially high tax paying
companies.
Primary market to get a boost as
long term capital gains will not be applicable to amounts invested in IPOs
Sectoral Impact
The biggest beneficiary sectors will
be Consumer ( reduction of excise on food items and increase of import
duties) and Autos (reduction of excise duty on two and four wheelers;
accelerated depreciation for commercial vehicles). Banks will enjoy the
benefit of interest rate cut. Pharmaceuticals, fertilizers and sugar will
benefit from proposed price decontrol. Software sector will also benefit
from changes in rules regarding foreign investments and tax incentives for
Technology parks. Cement will have a mild negative impact as import
duties have been reduced. There were expectations built in power sector
which have been belied.
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