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    Budget 2018: Earnings blast is coming and it is more powerful than LTCG tax: Raamdeo Agrawal

    Synopsis

    Not surprised LTCG tax and STT staying on did not faze the market, says Raamdeo Agrawal

    raamdeo-agrawal3ET Now
    If you see the things which are being done for the rural India, it is going to give a lot of leg-up to many rural-oriented cheap motorcycles or housing projects
    Talking to ET Now, Raamdeo Agrawal, Motilal Oswal, says the whole focus of the Budget has been on the masses, on the rural, on the farm side without impacting the corporate side.

    Edited excerpts:

    The scenario which we were working with in the morning has got challenged and typically in the short term when the scenario gets challenged markets always react and sometimes overreact but today even though long term capital gains tax is back and STT stays, markets are not cracking. It is quite puzzling?
    I heard that entire speech of the finance minister. One of the things I heard is that the finance minister wanted to reduce corporate tax to 25% for everybody but restricted it to the companies with up to Rs 250-crore turnover. There is a hope that next year there could be a better proposal on that side. In capital gains, the grandfathering of the gains was not heard of in India. Domestic investors have not experienced this kind of relief by the government. So, on the whole, the corporate side is also not impacted. I thought on the whole. it is a very balanced kind of situation for us.

    On the short-term markets, it is all about sentiment in the medium term. It is about liquidity and perhaps earnings. What do you think this Budget has done to ensure that profitability and cash flows go higher because that is how you will value future companies either on cash flows or projections of growth?
    On the whole, I felt that there is lot of focus on the farm side. They have put out Rs 10,000 crore on fisheries and aquaculture. I think India is going to become shrimp or fishery capital of the world. So, that is an upcoming new industry and the focus is perfect. They are listening to the requirement of the industry and that is completely rural in character. There are many other this things and even Rs 5 lakh of health insurance is great. It is almost like a health insurance for the entire country. I do not know how that will be delivered effectively but that is also a huge opportunity for the entire general insurance industry. The whole focus has been on the masses, on the rural, on the farm side without impacting the corporate side. Basically they are the taxpayers. Without impacting the direct taxes or corporate tax, it means you cannot expect anything more than this.

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    There is a mention in the budget speech that Sebi will now make it mandatory for large corporates to raise 25% from the debt market. That means the government is committed to make the debt market more vibrant but that is bad news for banks because a large part of corporate borrowing is done from the debt market. In that case, whom do banks lend to because large corporates which have credibility will only get money from the debt market? If these corporates do not go to the banks then your credit numbers indirectly will start looking slightly shaky?
    But we do not have the data how much actually they are borrowing right now because all the large corporates do not actually go to the banks because of the intermediation charge. The banks have a lower rating than the large corporates themselves and the cost of intermediation of the banks -- deposit rates plus your regulatory charges plus operating charges -- all end up at about 8.5-9%. Most of the corporates are able to borrow at a lower rate than that. I do not see that to be challenged for the banks but one has to see how much they are already borrowing. My sense is they are already borrowing more than 25% from good large corporates are borrowing more than 25% from this bond market.

    There is also a mention that there would be a tax on dividends given by mutual funds. Is that bad news for funds?
    I do not know about debt funds because I do not do any debt funds but even equity mutual funds will be at parity. But because the equity mutual fund dividend is only small portion of the total gain, whereas in debt funds, dividends are the total gains from the funds, the impact will be felt a lot more by debt funds. But my understanding is very limited on that.

    I am amazed that with long-term capital gain tax and STT staying, the reaction did not last for even days, it lasted for few minutes.
    I am not surprised at all. I told you in the morning that there is going to be no impact because the market is sitting on a very different kind of a demand supply situation. The kind of inflow which has come in January people have not bought in. Again, there is going to be demand coming through and the economy is coming back. Actually, what drives the market is what is happening in the economy.

    The corporate results, the aggregate profits are already up by 29% and you will see the March quarter will be even larger. The earnings blast is going to be there for the next at least four to seven-eight quarters and it feeds itself. That is more powerful than capital gains tax because in any case, the stock is not determined by the capital gains tax, it is determined by the corporate earnings and corporate earnings growth. And that has not been impacted at all.

    In fact, if you see the things which are done for the rural India, it is going to give a lot of leg-up to many rural oriented cheap motorcycles or housing projects. They are going to get a lot of boost. I would think on the whole, it is a positive thing but there is event risk also. Ultimately, we have to get back to the business.





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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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