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It’s Time For Govt To Bite The Bullet To Revive Financial Markets & Economy

Author: Rajiv Singh/Wednesday, July 31, 2019/Categories: Exclusive

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It’s Time For Govt To Bite The Bullet To Revive Financial Markets & Economy

Stock markets are a reflection of the state of a country's economy. It is also is one of the major sources for raising capital by companies. In the recent Union Budget, finance minister Nirmala Sitharaman had imposed hefty surcharge on Foreign Portfolio Investors (FPIs) registered as trusts triggering a huge sell off in equity markets. Foreign players have pulled out around Rs 10,000 crore since the Budget day.  The government is making revenue from the capital markets through regressive measures like LTCG, taxation on dividends, buybacks and double taxation on equity mutual funds. The government hasn't been able to earn major revenue, but equity investors have lost Rs 12 lakh crore so far due to the myopic measures.

Two months ago, when Prime Minister Narendra Modi swept back to power with a landslide victory, equity investors and business houses  were euphoric, but  I have not seen any government lose such a tremendous goodwill so soon and so easily!

The extension of taxation to segments like share buyback, FPI trusts and the super-rich class proved to be detrimental to the investing environment and fund inflows into the equity markets. Benchmark index Nifty has declined by 8% followed by mid-cap and small cap index which declined in the range of 13-15% since the Union Budget announcement indicating disappointment among the investor community.

We are approximately a $3 trillion economy with over 134 crore population, 150 crore bank accounts, market cap of Rs 150 lakh crore but only 3.5 crore Demat Accounts. 8% of Indian population participate in equities and equity oriented avenues whereas it is around 35-45% in major developed economies. The ratio of market cap to GDP is one of the parameters which evaluates depth of the financial sector and it is above 100 in Singapore, US, Canada, Switzerland, Malaysia and Japan whereas in vibrant economies like UK, France, Germany and Norway, it is around 65-75. India’s reading is a bit under 100% which makes us stand in line with major global economies.

Thanks to the underperformance of other asset classes and demonetization, more funds are entering the financial assets, especially equity class. Combined efforts by regulator, exchanges, industry associations, financial media along with market participants like fund houses and broking houses towards investor awareness and education have helped equity culture to grow. However, the domestic savings into equity markets is only 5% of household savings, which is pretty low compared to other emerging markets, where it is in the range of 10%-15%, leaving a lot of scope for growth of equity culture.

Equity markets are in the business of finance and investment. Apart from the players in financial markets, the government has a key role in the growth of equity culture. After meeting FIIs, big fund managers and HNI investors, the government gets an impression that huge profits are made in the financial markets. But the reality is different. The retail investors' portfolio is bleeding with many small and mid-cap companies on the decline post imposition of LTCG tax coupled with other regressive regulations.

In case of FPIs registered as trusts, the government should have given a year as moratorium or special window to transit from trusts to corporate structure, which would have soothed the nerve of foreign players. Such a move could have stopped the ongoing rout in equity markets.

Now, the government needs to come out with stimulus package or immediate policy measures to boost demand and consumption, generate employment, increase per capita income and create investable surplus for individuals. The government has to tweak laws and provide special incentives, tax deductions and exemptions to investors so that long-term equity investments are encouraged. The government wants to achieve its target of Rs 1.05 lakh crore of divestment in PSUs. However, with the current carnage in stock markets, it may be difficult to realize the target. Hence, more proactive steps are required to promote equity culture and boost investor sentiment to achieve its disinvestment target.

It is high time Modi 2.0 comes out from its victory hangover. The government should spend its energy in competing with China, Korea and Taiwan. India has among the highest-  land cost, labour, capital, electricity, railway freight rates, air freight, corporate and income tax rates. To achieve 8 per cent GDP growth requires lowering each one of these rates. We need new land laws to reduce land prices and acquisition costs; new labour laws that reduce labour litigation cost through flexibility, lower fiscal deficits that help reduce the interest rate, electricity reforms that reduces high industrial rates to subsidise farmers, rail reforms that end high freight rates that subsidise passenger traffic; lower taxes on aviation spirit to lower air freight, a lower corportae tax which is at par with major developing economies and a shift from high support prices for crops to direct cash benefits for farmers to lower agricultural prices and make them internationally competitive. Instead of focusing on frivolous legislations, the government should come out with pro-growth reforms to make India competitive vis-a-vis other countries to reap benefits from the ongoing the US-China trade war. The time has come to display the political will to walk on the path of 'Perform, Reform and Transform' to put India again on the growth trajectory which has been awaited since long time.  The government will have to bite the bullet to revive economy and thereby financial markets.  (The author is CEO - Stock Broking, Karvy)

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Number of views (2224)/Comments (29)

29 comments on article "It's Time For Govt To Bite The Bullet To Revive Financial Markets & Economy"

M NAGESWARARAO

7/31/2019 5:09 PM

The growth of financial markets indicates the status of a country's economy and which helps to compete with the other foreign markets.So the govt must concentrate on the tax rate which were imposed on FPIS.


Mohamed Rizwan

7/31/2019 5:56 PM

In the article :Global markets wobbled while Indian indices produced a higher return it has mention that already Indian market are less liquidity while compare to others,now because of surcharge of TAX on super rich the FII moving out from Indian market and there is a probability of liquidity crises further. so the finance minister has to take alternate decision.


kurva madhu

7/31/2019 5:59 PM

Yes the Indian Govt has to come out from the it's recent modi 2.0 triumph and start focusing on the lower corporate tax, new laws for reducing land prices,land acquisition costs.

Govt need to come out with the special incentive structure,tax deduction and exemption to investors. It'll give a relief to the investors and these decisions will boost them to invest more in the equity.


Swapnil

7/31/2019 6:06 PM

Govt has to reduce LTCG to create interest of long term investors. Repo rate has to reduce to influence individual investors to do business(Startups) in India and to compete with FDIs.


Rajesh Kumar Jha

7/31/2019 6:11 PM

The selling sentiments have been impacted by the higher tax on FPIs. The bad loans in the banking and non-banking sectors also weighs heavily on investor sentiment. Selling seen in the sharp slowdown in segments like auto. Time has come , government needs to take effective policy measure to boost investor sentiment . Also More proactive steps are required to promote equity culture.


vikash singh

7/31/2019 6:24 PM

I think Govt. Has to come forward and have some break on imposing taxation on every thing Such as Share buyback, LTCG Tax, And SEBI surplus Because this not the only solution to strengthen our economy..


harvinder singh

7/31/2019 6:28 PM

Govt need to reduce the tax implies to attract FPIS to revive economy thereby financial markets.


vishnu kant

7/31/2019 6:43 PM

Unless the Government takes some decisions in favour of the companies, it would be tough for market to bounce back from these level.


Avishek Guha

7/31/2019 6:46 PM

Indian markets need to have increase participation of retail clients.The government should introduce some reforms such as lowering of STT or abolition of LTCG which may attract more participation in equity market.


Debraj Bhattacharjee

7/31/2019 6:49 PM

Its high time the Government should take steps to boost the Economic Slowdown and come out with measures which should encourage the FPI's to invest in India.This will help in foreign money flowing into our country and make our domestic currency stronger. Stock Market is considered to be the barometer of Indian Economy and the Government should take steps to boost consumption and create confidence in the market.


ARUN TS

7/31/2019 7:03 PM

Investors expects markets as a safe and stable avenue to put their money and takes return from it.And our market was one of the option and avenue.But the govt is simply a making our market as hell for the participants.they are already lost a good chunk of their investments and expecting it to continue until the govt rethink on their awesome command on the FIIs and FPIs who can change our market drastically.


hemant gawali

7/31/2019 7:17 PM

government should reduce its taxation on stock markets and put tax on imports this will increase domestic manufacturing and economy


Supriya sahoo

7/31/2019 7:25 PM

If Indian economy will go down ,then automatically stock market will go down. Government must take appropriate decision for growth of equity culture , economic growth. It will increase the interest of FIIs, big fund managers and HNI investors.


Hari Mohan Jha

7/31/2019 7:39 PM

our steps are not like tax mature countries and even we require funds to grow either for government disinvestment target or capital raising purpose,so government should treat cautious with big player and given a time lag for covering their entity so that damage in market will be minimum.

At this moment government do not bother about stock market, FII do not bother, HNIs do not bother,retail do not bother than market will go----------?


Ravinndra Kr Singh

7/31/2019 7:43 PM

Government and FM need to take corrective actions to cover up the damages done to stock market by taking disruptive steps in this union budget.

Then only our market cap to GDP ratio will move towards 100%.


Neha Jha

7/31/2019 8:54 PM

It is actually high time to come out of the celebration mode and perform. It has been a blood bath since budget for the retail investors. With no change in LTCG tax in equity, 20% tax on buyback of shares, proposal to raise public shareholding to 35% has given a clear thumbs down in the market and have shaken the sentiments of the investors amounting to huge losses.


Anshu Tiwari

8/1/2019 8:45 AM

government has to provide tax deductions and exemptions to investors so that long-term equity investments & FII are encouraged.


Rekha

8/1/2019 4:20 PM

We still have too much scope to increase the domestic savings into equity markets which is presently 5% of household savings, which is pretty low compared to other emerging markets, where it is in the range of 10%-15%.

It will happened only when investor will get return,but in present market scenario,it is not looking possible.

It;s a foot for though for government.............


Rajeev

8/1/2019 4:40 PM

One of the daunting challenges before the Indian capital markets is expanding the investor base and provides them access to high quality financial services.


Preeti

8/1/2019 5:47 PM

Government should come with some reform policy , as the equity market are in red and most of retail population are investing saving in equity market.


Saurav Kumar

8/1/2019 6:50 PM

The government should reduce its taxation on stock markets


Ravi Prakash

8/1/2019 6:53 PM

Government should consider the impact of FPIs pull off and take corrective action to boost the economic growth and to encourage FIIs to invest in Indian market.


Prakash

8/1/2019 6:55 PM

Rightly pointed out here is, If we want to compete with global emerging powers we should focus towards lower corporate & individual taxes and cess on fuels so as to incentivize the economy.


Selis Masih

8/1/2019 7:00 PM

The government needs to make changes in STT and LTCG in order to attract investors as well as focus on inviting more foreign investments.


Sk Madaseer Hussen

8/1/2019 7:00 PM

government should reduce its taxation on stock markets and put tax on imports this will increase domestic manufacturing and economy


Manmohan Tiwari

8/1/2019 7:02 PM

Government's blanket ban on sale of BS IV norms vehicle form May 2020 and the regressive tax on petrol and diesel vehicle is hampering the growth of automobile industry and now become a challenge for sustaining the economic growth to 7.2% so government needs to ease some policy which are imposed by government then only india can target for 8% GDP.


Panchanan Sahoo

8/1/2019 7:02 PM

As equity market play an important role on finance and investing government has to play an important role for the growth of the economy.


Avvab

8/1/2019 11:00 PM

In india only 2% people invest in stocks. we have to reach the remaining 98% that's the issue. Govt needs to focus on making market primary vehicle for wealth creation job creation and channelising savings in India.


Saroj shah

8/3/2019 3:52 PM

last couple of days investors pulling out the money on continuously basis. Gov. should take decisions that support investors sentiment.

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