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Retail investors have every reason to cheer

Author: A Saye Sekhar/Wednesday, February 14, 2018/Categories: Cover Feature, Expert View

Retail investors have every reason to cheer

Arun Jaitley’s budget, though has levied a long-term capital gains tax, the shares of different sectors have a reason or two to celebrate. The retail investor, in spite of the LTCG Tax, has a reason to cheer, for those trading in the stock markets do understand the nuances and the fine print.

The benefits accrued so far, entering into the tax bracket over earnings, and the outlook are surely going to pep up the scrips and investments. Technology, Telecom, Healthcare, Education, Insurance, Fintech, Infrastructure have all received a boost in the budget. Here are the views of some experts who have their skin in the game.

S Suresh Babu, CA, SBS & Co LLP

The Union budget laid focus on rural economy, agriculture, infrastructure such as Railways and Roads, and e-Learning activities. With the proposed structural changes, the companies engaged in the following sectors can be benefited in the long run:

  1. Products related to agriculture.
  2. Infrastructure companies exposed to construction of roads, bridges, toll way operations, railways etc.
  3. Those operating e-learning modules/ methods for primary, secondary and higher education.
  4. Medical sector
  5. Health and medical Insurance sector
  6. Social entrepreneur activities
  7. Cold-storage facilities related activities.
  8. Fintech

Long Term Capital Gain (LTCG)

The Budget has proposed the LTCG on the specified securities in excess of Rs. 1 Lakh. However the Capital Gain accrued based on the highest price quoted on 31st January, 2018 is exempted.

Tax computation - LTCG:


Sale Price

Total Gain (Sale Price Less Original Cost)

Grand Fathered Gain[1]

Taxable Gain

Tax @ 10%





5 = (3-4)

6 = (5*10%)

Scenario 1






Scenario 2






Scenario 3






Scenario 4






Up to Rs. 1,00,000 of LTCG is exempted as per the proposal.

Tax on Dividend distributed by Equity Oriented MF schemes

The FM has proposed a tax on distributed income by equity oriented mutual fund @ 10%. This will provide level playing field across growth-oriented funds and dividend distributing funds.

Benefit of additional Tax benefit to Footwear and Leather Industry

The FM has proposed to extend the benefit of additional deduction of 30% (in addition to the normal deduction of 100%) on the emoluments paid to eligible new employees who have been employed for a minimum period of 150 days during the current year and continued in the employment for a minimum period of 150 days in the subsequent year.

Sridhar Sattiraju, BFSI Expert

Spike in opportunities from the Digital India push to the IT and Banking majors

  • Initiatives like Smart City development, development of Gram Panchayat digitalisation and development of Optical Fibre network besides use of Blockchain technology is going to create good opportunities for IT majors. While specific projects will be following the bidding system, the frontline IT majors like TCS, Wipro and Infosys and companies in the telecom space especially the new majors like Reliance will be major gainers. Having said that, a number of small and medium-scale IT companies have sprung up in the last few years which are commanding lesser price earnings compared to mega market cap IT companies, it is time for investors to seek out such companies doing the next-gen services like deep machine learning, algorithmic trading, and other fintech applications rather than living on past glory as a services company or a company purchasing software services.
  • The launch of the world’s largest insurance scheme  and the massive rural spending and infrastructure outlay is going to benefit Banking Giants like PSU Banks and private banks who are ramping up the rural branch networks.
  • The budget has outlined that bond market will be deepened by allowing various government and semi-government bodies to list with even minimum acceptable rating of BBB or A. Earlier, most of the EPFO investments and Insurance Fund investments were allowed only for AAA rated securities. This will help the listing of many institutions which have not been tapping the market for long due to absence of credit rating, now they will be accessing capital markets and this makes it easy for the treasuries of banks to increase both liquidity and trading gains from investments in securities.
  • The various measures announced to make MSMEs more effective in creating jobs and to avail of concessional tax rates will make Banks having a robust SME exposure a big beneficiary. Banks which have been doing wholesale banking run much riskier business compared to banks which nurture smaller companies, nurture them and enjoy all the returns that come from strong and profitable relationship ventures.
  • The provision to encourage firms to approach the corporate bond market will put some pressure on weaker PSU banks and allow majors like the SBI and the BOB to consolidate their share of corporate borrowings. The loss of corporate banking business will be a zero sum game between the PSU banks where the stronger banks gain and the weaker banks cede market share.

Gurudatta Kamath, CA (long-term investor)

Controversial LTCG (Let the Capital Go)

The 2018-19 budget will go down in the history as the shortest budget since long time due to Indirect taxes being put within the purview of the GST Council which decides on the GST rates from time to time. Interestingly, the painful one for individuals and more specifically for investors was a climax in the budget. There are not many tinkering with the personal taxes. No changes in the slabs which is an every going wish for individual investors. Even the standard deduction of Rs. 40,000 gives only net benefit of Rs. 5800 deduction after considering the Transportation Allowance (Rs. 19200) and Medical Reimbursement (Rs. 15000) disallowance henceforth.

The controversial but expected tax re-introduced was LTCG of 10% (Long Term Capital Gains) on selling of stocks and equity-based mutual fund which indirectly lowers the long term gains for investors. Though on a fair treatment basis, this tax is still lower than the direct taxes levied on individuals/corporates, these are apples to oranges for the sheer reason of additional risk taken by investors.

The other side of argument would be long term investors would do their due diligence and hence they will end up earning better returns so this tax is reasonable.

But this will open up many can of worms for investors to take benefit of –

  1. There might be more bonuses declared by companies since bonus stripping is still an avenue for investors
  2. Insurance companies will be more open to introduce new fund which are more akin to ULIPs or modified ULIPs
  3. Corporates will resort to more buybacks to reduce the current market price

On an overall basis, investors will take this in stride because 10% is not a large burden considering the fact that the base price is 31st January, 2018 and investors will eventually look at longer term perspective for their investments

Mr. Kota Srinivasa Rao, CEO & MD, Tradewell Securities Ltd

From the word GO, it was Jaitley on the go. This year’s budget is pro-poor, farmer centric, revenue and tax mop-up budget from Mr Jaitley who batted skillfully avoiding the bouncers of the opposition by pleasing all the MPs with liberal pay hikes pegged to inflation.

Hike in fund allocations especially in Rural Housing, Roads and Toilets.

  • Two Initiatives that stood out under the Aayushman Bharat were allowing health & wellness centers to provide drug & diagnostic services and making private sector use their CSR funds to adopt these centers.
  • The clincher for platitudes from the poor, below the poverty line segment, came in the form of a scheme of providing flagship National Health Protection Scheme to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) providing coverage up to Rs 5 lakh per family per year for secondary and tertiary care hospitalization. This definitely a booster dose for Hospital stocks.
  • With awareness and determination to curb air pollution, incentives for air control equipment were provided which would help air-related sector-specific stocks.
  • Skillful fund allocation for Skill India in education under the Right to Education has been provided and emphasis was on moving from B to D - Blackboard to Digital board and Ekalavya scheme which is equivalent to the MOOCs model has been incorporated into the budget draft for providing online classes and virtual class rooms. It’s good for education and electronics sector stocks in this space.
  • Government also was serious to spur employment in apparel, leather, organized retail, exports, tourism and footwear industries which hold scope for large employment opportunities.
  • Domestic Edible oil players, Silk producers, auto ancillary stocks, mobile component manufacturers, LED, OLED TV manufacturers will be maximum beneficiaries and would garner good buying investor interest.
  • Allocation to Food Processing is being doubled from Rs 715 Cr to 1,400 Cr in 2018-19. Set up state-of-the-art testing facilities in all the 42 Mega Food Parks, boosting food industry.
  • Government sets target to construct around 2 crore toilets which augurs well for sanitary players.
  • Fisheries and Aquaculture Fund for fisheries sector and an Animal Husbandry Infrastructure Development Fund with a Corpus of 10,000 crore is good for Aqua, Shrimp, Feed companies.

Emerging trend over next few months will be that investors may stop thinking from long term or short-term perspective. Instead, they would look at the opportunity at hand.

K.L Ravikanth, Certified Financial Planner

Budget 2018 is a structural shift of government programs from Urban to Rural India on four pillars of national growth i.e Agriculture, Employment, Health and Infra. The biggest reforms as expected are in Healthcare (Rs 5 lakh health insurance per family) and Education (B to Digital Board). This directly and indirectly benefit Healthcare, Technology and Telecom for managing this digital health and education.

 India being capital to many diseases like TB, Heart attacks and communicable diseases need 5% GDP budget towards Health care as per the World Health Organization recommendations are getting implemented by these reforms.  The major problem in this sector is lack of public infrastructure and qualified Doctors, Still Government had not clearly laid the road map for public health infrastructure but depending on private hospitals and charitable trusts to maintain the world’s largest health insurance scheme is most dangerous scenario. Listed companies like Apollo, Shalbay hospitals, Drlalpath labs, Thyrocare, BPL ltd, Opto circuits etc in Hospitals, medical devices and specialized support services will be benefited.

With the allocation of 10,000 Crore to provide internet connections for 2.5lac panchayats etc under Bharat net, the biggest beneficiary will be Reliance industries (Jio), Bharati directly and Sterlite Technologies, KEI, Universal cables for providing back end optical infra in this sector and other small companies in providing operational services like HFCL, Shayam tele, Aswarya tele will benefit from this project in bits and pieces.

Coming to Tax reforms, the biggest change will be LTCG, because this provides government in future to increase the tax collections from this avenue. This is also an opportunity for financial services industry to churn the portfolios based on stock performance and adjust the opportunity cost to individuals and also earn brokerage from providing specialized research services and support services. SIP Savings person will not lose anything if he uses a specialized financial planner services who understand tax and markets in portfolio changes.

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