Earnings of the companies dictate the stock prices of the companies in the long term - says the old wisdom. Though the sentiment is buoyant in Indian stock markets, most long term investors are worried about earnings growth. No wonder investors are looking at the forthcoming budget with a lot of hope, as it can be an opportunity finance minister may take with both hands to ensure a big stimulus to the economy and corporate earnings.
Government has made it clear that it is pro-growth and there are initiatives like 'Make in India' announced to boost manufacturing sector. However there is a need to offer incentives in a measured approach to select industries planning to undertake long term investments. These can come in the form of tax sops to companies and to the investors. Government may choose to re-introduce long term tax-free bonds for projects in infrastructure space, which will be a win-win situation for both the companies as well as for the investors.
The investors are also expecting government to stick to fiscal targets. This will facilitate further fall in interest rates in the economy, as RBI may accelerate the rate cut cycle. Fixed income investors stand to benefit with a fall in interest rates.
Investors are also vocal about stability in the taxation policy of investments gains. Last year finance minister hiked the dividend distribution tax on the bond funds and also increased the time period required to become eligible for the tax treatment of a long-term capital gain to three years from one year earlier. This was a surprise move for most individuals and adversely impacted their investment plans. Government can also consider cut in securities transaction tax and commodities transaction tax to ensure lower cost of transaction.
Finance Minister also spoke about unified 'know your client' norms for investors across investment products in budget last year. Union budget should offer a well defined time line for the same. Investors are also optimistic about increase in tax saving investment limits and specific tax sops for retirement focused investment options. This will channelize more money in financial investments and further increase the depth of Indian financial markets.
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