Prepare for volatility
By Invitation Arun Kejriwal Founder, Kejriwal Research and Investment Services

Budget day was as volatile as volatility should be. The BSE SENSEX made an intraday high of 36,256 points and a low of 35,501, an intraday swing of 755 points. The net change was a loss of 58.36 points or 0.16 per cent. Similar numbers for NIFTY was a high of 11,117 points and a low of 10,878 points. The swing was 229 points while the net change was a loss of 10.80 points or 0.10 per cent.  What spooked the market was the introduction of LTCG or long-term capital gains. It was more or less on expected lines and the only surprise was the exemption limit of just Rs 1 lakh. This effectively means that virtually everybody would come under the tax on long term capital gains from nil to 10 per cent.

This would throw up an arbitrage opportunity for trading and therefore increased volatility in the markets. Institutional traders would have to take a call whether it makes sense to hold on to the share and pay 10 per cent tax or quit today, by paying a marginally higher tax of 15 per cent as short-term capital gains. This call would make markets volatile. 

The budget was the last full budget of the present government and it had something for everyone who matters in the scheme of things. The thrust of the budget is on being an inclusive budget and is meant to benefit the bottom of the pyramid. There is increased focus on agriculture, healthcare and education. The announcement of making minimum support price for crops as 1.5x of cost is a great thinking and translates into a corporate thinking where there is assured returns linked to cost of produce. Stock markets would like something like this and appreciate the new thinking.

Focus on education and healthcare are primarily aimed at rural India and the large portion of India’s underprivileged. The schemes announced for them are aimed at providing them basic facilities and advanced treatment as well and all at a less than affordable cost. The amount earmarked for the same is a massive Rs 5 lakhs per person and is targeted to 10 cr households or 50 cr people. Education would provide the impetus to make our coming generations well prepared to face the needs of a skilled India and provide them job opportunities at a later date.

The allocation to infrastructure whether it is on roads, airports, ports and railways will provide direct employment to a large number of people and this would happen at the place where the development is happening on an immediate basis. This would give a push to rural economy and help in achieving the growth in GDP as well.