Thoughts on the Union Budget

The Union Budget is a statement of account of the economic performance of the year gone by and the expectations of the year ahead. Thanks to the impact it has on literally all sections of the society, it is watched, debated and analyzed for days on end. 

From Twitter to Newspapers to Blogs, its filled with Analysis of every statement and line that is found in the Budget Documents. In this post, I don’t wish to go down the same road and drown you with more of the same.

Once upon a time, we used to have the Budget at 5 PM on the last day of February, This practice was inherited from the Colonial Era when the British Parliament would pass the budget in the noon followed by India in the evening of the day. It took more than 50 years till the time was changed to a more manageable 11 AM.

 Since the budget lays out the taxation for products and services, the direct impact on companies can be substantial and to ensure that the markets are not caught off-guard, the markets have been open during the presentation of the budget.

One commonality among literally all budgets is how much of expectation is built into the budget and how most people somehow are disappointed at the end. This year was no different other than for the fact that somehow the finance minister has seemingly angered literally everyone.

The stock market was upset because Long Term Capital Gains Tax was not removed and more importantly the tax liability on dividends shifted back to the investor. Worldwide, the poor aren’t greatly represented when it comes to investments in equity, it’s the rich who are able to divert a substantial part of their savings to equity.

90% of India’s population has no participation in markets. Yet, like the tail wagging the dog, the small minority of investors who get impacted by bear markets seem to believe that the prime function of the government is to keep the stock market happy.

The main line indices are often said to be barometers of the economy. If that is true, Indian Economy is in great state with Nifty 50 and Sensex being less than 7% away from their all time highs. Then again, whom are we kidding.

It had been 325 trading days since Nifty 50 fell 2.5% or more and the disappointment in the budget was evident when this spell was broken. Stocks which were seen to have a negative impact fell even more. But this is not the end nor the beginning, it’s just one more random day in a random year. 

Flush with savings that have shifted from other asset classes to equities, we had bid our stocks  too high even as the earnings showed no sign of catching up. The chickens have since 2018 have been coming home to roost. While it’s easy to shift the blame for the fall to the introduction of Long Term Capital Gains tax, the reality is that the rot had set a long time ago and all it needed was a little push.

The issues facing the country are many and yet we shall thrive somehow. Markets are mean reverting in nature and currently in a downphase but at some point will start moving higher regardless of whether the government acts big or not.

Markets get cheap – Markets become expensive – Markets get cheap again. It’s a cycle that has lasted time and again and something that is bound to continue in the future as well. The path forward is not to get disheartened by setbacks but see them as opportunities. 

The disadvantage of being a democracy has meant that very few politicians want to take the long call with everyone focussed on the short term calls that can boost their popularity. This has meant that we have missed opportunity after opportunity to set right the course. This ain’t getting solved in this budget or the next. 

To conclude, a Budget that seems bad for the stock market may actually be a good for the real economy. If the real economy flourishes, markets will turn on a dime. A growing pie is what we need for once the pie is growing, opportunities come to the fore despite government floundering.