LTCG disappointment, high divestment target making market nervous: A Balasubramanian, Aditya Birla Sun Life AMC

Why are markets nervous? The markets have pretty much got what they wanted; a focus on consumption, deduction on DDT, a number which is committed to the fiscal discipline and the macro discipline is not going to be compromised for next year.
The market has reacted negatively on two things; I would assume one is there was a widespread expectation that LTCG would be removed and that could actually boost the higher level of participation in the market. Second, though they are keeping fiscal deficit at 3.8%, the large proportion of the fiscal balance is also coming on account of Rs 2,10,000 crore of divestment proceeds they are taking which included of course, the LIC’s divestment proceeds. We could see some kind of slip in that.

Third, with respect to any private sector investment the big boost investment that would come, the government is allocating more money towards building infrastructure, rural economy and mainly on the agriculture sector. That is good. It can boost the level of employment in the hinterlands.

But having said that, there is no major investment that would come from the private sector and therefore the capital expenditure coming from the private sector could also be relatively less as a result of that. That is why the market is reacting but on a broader basis, given the constraints that we have, some of the expectations like dividend distribution tax will improve the ROA of companies and reduce the tax burden at the company's level.

At an individual level, everyone has to pay the tax. At the same time giving an option to the taxpayers to choose either exemption related tax paying structures or a structure without availing their exemptions, will reduce the tax burden for the large pool of middle class income tax payers and that should also boost the consumption. So quite a balanced approach I would say.

Will Birla AMC be looking at buying insurance stocks on Monday morning?
Of course, it is a surprise provision. The extent of focus that was brought in under the 80C if the collections are coming through both in insurance product and real assets product, definitely. Now, they have given an option to the taxpayers not to avail those exemptions and then reduce your tax burden, making it easy to file tax returns. Definitely, it will shift away some of the investors who have been traditionally using the Rs 1,50,000 route for saving tax as well as create long-term wealth.

While of course, it is negative from the long term wealth creation for those investors’ point of view, definitely it makes sense from the individual point of view. But the stocks’ reaction is temporary in nature. Ultimately, it will come back on what is the rate of growth on an overall basis. We will have to look at it from the ELLS schemes point of view as part of the mutual funds assets.

ELSS is not a large component of the assets under management it is about 5-6% of the total liquid assets under management that one would have therefore the stock I think should not reacted too much on these provisions alone.