'This Budget has a lot of positive things'

Motilal Oswal

Market is disappointed by the tax on dividend distribution and relatively smaller PSU divestment target fixed by the government.

This is a good time to invest in refinery stocks like BPCL, HPCL and auto stocks like Hero Honda & Telco, and FMCG stocks like HLL as all these companies are benefitted by the budget

I would recommend that instead of investing in Nifty, you could invest into stocks like BPCL, HPCL, Hero Honda, Telco, HLL etc for long-term time horizon. I would recommend you to move from tech stocks to refinery, auto and FMCG sector stocks.

You should not worry about where the stock market is headed. You concentrate on the stocks and its fundamentals and leave the market worries to others. Market is not happy and has reacted negatively to the budgetary proposals.

As far as investor confidence is concerned, Budget per se does not restore the investor's confidence. It is only the corporate and economic performance that will restore its health. However, this Budget has a lot of positive things like reduction in subsidies, APM dismantling, reducion in price of petrol and diesel, introduction of 15 per cent additional depreciation, interest rate cut, larger investment on infrastructure project, etc.

All this is going to boost the corporate and economic activities and this will improve the demand and so the performance. The IT stocks have gone down because levy of 10 per cent of the total income will be charged to income tax on Software Technology Parks units of the software companies.

I personally see that the dividend distribution tax may be roll backed.

The middle class will be be taxed slightly higher and will have to pay more for the kerosene and cooking gas. Hard times ahead, but the investment habits can be moulded. Any harshness can be curtailed through systematic investment planning.

The divestment process has already caught momentum. And the target for the next year is only Rs 120 billion, which will be met without doubt. Of course, if that doesn't happen, markets will take it negatively as the whole rally for last couple of months is based on the expectations from PSU divestment process.

The 5 per cent surcharge levied on the working class is for defence expenditure and anti-terrorism activities, as our country is passing through one of the toughest times on these fronts.

Middle and salaried class people should plan investment in a very systematic way so that the volatility in any markets (equity, debt, MF, etc.) is cut short. Depending upon your investment habit, your family consumption/investment pattern, etc you should plan this over a period of time.

Don't worry, markets are not at the mercy of Budget only. They also look at fundamental changes in the economy. Budget or no budget, winners will keep winning.

Interest rate scenario has gone through big time changes. As the interest rate in the economy are dropping down, the small saving rates will align themselves with the avgerage annual yeilds of G-Sec. This means that floating rates scenario across debt market has arrived.

Companies/MFs paying dividend distribution tax will now not be paying (TDS) now. It will be receiver who would have to pay the tax. So the incidence of tax has shifted from the company to individual.

One may take a different angle to view one same thing in different manners. For this Budget and the country, revenue collection has to be improved. And any missed opportunity needs to be tapped.

The government wants to widen the tax net. Secondly, if that particular individial is coming into tax bracket of say 25 per cent, then the dividends will also be taxed accordingly.

Motilal Oswal is MD, Motilal Oswal Securities Ltd.

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