The good, the bad and the so-so...

...and what it could mean for the investor

The mutual fund industry was hoping to get some attention from the maiden budget of Finance Minister Nirmala Sitharaman, but there was nothing much on this front.

The overseas borrowing move, though, is a bold step and this could be positive for government securities. But rather than raising money overseas, the government should have displayed more confidence by increasing the limits for foreign investors under the FPI route into the Indian Government Bond market and encouraged global investors to invest in India to help develop the local bond market.

Wider participation

The proposed increase in public-holding in listed companies to 35 per cent from 25 per cent will result in wider participation in shareholding. Capital gains generated when promoters offload stakes will help the government’s tax coffers. While there will be supply of equity, the market needs to be able to absorb the selling pressure. Many promoter-led companies and MNCs may prefer delisting as was noticed in the past.

The government was mute on the source of funding for its infrastructure push over the next five years. rupees. The announcement to invest in rail and road infrastructure and development of inland waterways is a sound step. The proposal to increase special additional excise duty, and road and infrastructure cess, each by ₹1 a litre on petrol and diesel, will result in inflationary trends.

 

The measure for NBFCs — where PSU banks buying pooled assets of up to ₹1-lakh crore from ‘healthy NBFCs’ will be guaranteed losses up to 10 per cent (₹10,000 crore ) — seems like a good step to bridge the trust deficit. But the amount is small compared to the size of some of the troubled NBFCs and we have to wait and see what type of assets are allowed under this arrangement. The most stressed NBFCs — those unable to raise funds from the bond and loan markets — typically have a high exposure to real estate. Whether this government, which has tightened real estate sector regulations, will now allow some of those same firms to bail out is unclear.

The increase in custom duty on gold from 10 per cent to 12.5 per cent, unfortunately, ensures that India will never be the centre of the global gold markets despite being the largest consumer of the metal, and will continue to remain a price taker.

Such distortions make it difficult to channelise the hoard of India’s gold savings into circulation and thereby integrate the gold market with other financial markets.

The writer is CEO, Quantum AMC

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