Budget 2019: Mood Point

Image: Mexy Xavier; Location: Motilal Oswal Tower

At 10.30 am on July 5, the trading room at Motilal Oswal Financial Services Limited (MOFSL) was getting off to a slow start, with low market volatility and lack of orders coming in. But at exactly 11 am, as the country’s Minister of Finance Nirmala Sitharaman prepared to deliver her Budget speech, everyone on the trading floor was back at their desks. A group of employees from different departments gathered in front of a television near the retail research desk, where I was seated, and decided to watch the speech together.

While reactions were seemingly neutral across the floor, with no major policy changes being announced, as Sitharaman started talking about revenue mobilisation, one of the employees said, “Ye bajane wala hai [this one will be scary].” As the minister announced an increase in the effective tax rate through an additional surcharge of 3 percent and 7 percent for individuals with taxable incomes of Rs 2 crore to Rs 5 crore, and above Rs 5 crore respectively, a loud roar went up across the floor, with “Wow!” and “That’s big!” being shouted out.

That the government aims to reduce its fiscal deficit to 3.3 percent of the GDP in 2019-20, from the earlier target of 3.4 percent, seemed to make everyone around happy. The unexpected proposal to increase custom duty on gold and other precious metals from 10 percent to 12.5 percent was welcomed with a loud chatter throughout the room. While one part of the room was visibly surprised by the sudden change in custom duty, equity analysts were unhappy with a tanking Nifty.

Changes made in foreign direct investments filled the room with a happy laugh. A man sitting across the television said, “Agar sab kuch badhayege toh paisa toh aayega India mein [if they give so many incentives, money will obviously flow to India].”

The Union Budget could not fulfil all of the stock market’s expectations. Sandeep Gupta, executive group vice president and head-equity advisory at MOFSL says, “Markets that were expecting a reduction in corporate tax and schemes to induce spending in the economy were left disappointed. Clarity on non-banking financial companies and micro, small and medium enterprises was touched upon and addressed to a large extent.”

Even though the market remained neutral as Sitharaman read out her speech, it crashed right after she finished, tanking 395 points. “The market had a mixed reaction. Initially, the market had recovered from its lows. However, through the end, there was some disappointment about policies on direct and indirect taxes,” says Siddhartha Khemka, head, retail research, MOFSL. “The government proposes to increase the threshold from 25 percent to 35 percent. Major contributors to corporate profitability are still not included in the 25 percent tax bracket, which I think is marginally disappointing. Further, the market has negatively reacted to the additional surcharge on HNIs. Nonetheless, the agenda the government has sent will be beneficial in the medium to long term.”