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Budget 2020: Relief in STT and LTCG rates expected, says Nirali Shah of SAMCO Securities

Budget 2020: Relief in STT and LTCG rates expected, says Nirali Shah of SAMCO Securities

Budget 2020: Relief in STT and LTCG rates expected, says Nirali Shah of SAMCO Securities
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By Pranati Deva  Jan 27, 2020 1:24:39 PM IST (Updated)

A risk-taking investor can allocate a higher portion — almost 60 percent — to quality mid and smallcaps and 30-35 percent in largecaps, says Nirali Shah, Senior Research Analyst, Samco Securities.

Markets are expecting a reduction in personal tax rates and to an extent on capital gains as well, Nirali Shah, senior research analyst at SAMCO Securities, told CNBC-TV18.com in an interview. She added that relief in the security transaction tax (STT) and long-term capital gains tax (LTCG) rates are also likely. Edited Excerpts:

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How would you characterise the current environment: markets at an all-time high, economic indicators at a record low?
The current macro divergence between the economic indicators and markets isn’t a new phenomenon and our country has experienced it in the past. This time, it started with demonetisation which sucked the liquidity out of the system and just when that wasn’t enough, there was the goods and services tax (GST) surprise. Both these revolutionary regimes have attempted to formalise the economy which began the onset of a slowdown. The liquidity crises added to the existing grumpiness among the smaller corporates struggling to make ends meet.
Even though these reforms kick-started the slowdown, these will prove to be extremely beneficial over the long-term. It might be that certain portions on D-Street are expecting a revival soon by continuously pumping money into largecaps or it might be because of the need for safer quality avenues that investors are still considering large caps, despite they being at extremely high valuations. This will soon change and the rally will shift to mid and smaller caps. This is the way markets will unfold going ahead and so will the economy.
With the budget in view, do you think if the fiscal is compromised this time? How will that affect the markets?
The fiscal deficit has very high chances of not meeting the target of 3.3 percent of GDP as proposed in the July budget. In fact, there are expectations of the fiscal deficit exceeding 4 percent this time. Since the expected miss in fiscal deficit is known to all, markets may have already factored it in. But a very high variation from the expected will surely bring out a knee-jerk reaction by the bourses as in a way liquidity will flow to the government coffers through borrowings.
What is the market expecting from this year’s budget? Which sectors may see some relief in the budget?
Markets are expecting a reduction in personal tax rates and to an extent on capital gains as well. An infrastructure push in addition to the recently announced injection of cash will also aid in bringing about some relief to the struggling economy. Moreover, due to the extended monsoons, farmers’ woes will also have to be looked at. Sectors that will benefit the most would be infrastructure, fertilizers, agriculture, metals, and real estate.
What are your views on STT and LTCG? Do you think the government will tamper with this budget?
There are high expectations that the government will bring about some relief in the STT and LTCG rates. However, they will keep in mind their fiscal deficit target, which is already way above the proposed mark, before tampering with these rates. Therefore, an exorbitant shift from the current rates is unlikely.
Are measures by the government and RBI enough to curb the slowdown? Where do you think the government needs to take further action?
The government and the RBI
Midcaps have been outperforming the benchmarks consistently in 2020 after a poor 2019 and 2018? Is this the trend 2020 will see?
2020 will definitely mark a renewed rally for the midcaps which have been experiencing troubled times for the past two years.
What are your top stock and sector picks for the budget?
Metals and infrastructure would be strong bets to play for the budget. Hindustan Zinc is a good dividend play, Solar Industries is another gem which will benefit from the recent coal reforms. In the consumption space, Colgate and Dabur are sound companies that will revive with the pick-up in the economy.
Do you think FY20 will see an earnings recovery or will we have to wait for FY21 to see that?
FY20 will definitely see earnings recovery in certain pockets such as cement, metals and sugar. However, sectors such as auto will start showing positive earnings largely from FY21.
For a new investor, what kind of portfolio will you recommend?
A risk-taking investor can allocate a higher portion — almost 60 percent — to quality mid and smallcaps and 30-35 percent in largecaps. The remaining amount can be invested in gold.
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