Budget 2023: Abolish long term capital gains tax, says B Gopakumar of Axis Securities

2023 is likely to be a volatile year. Which budget announcements can help ease some pressure on the markets?

We believe that including the oil and gas sector in the ambit of GST and preparing a roadmap to reduce corporate tax rates to 15 per cent to make investments attractive can help ease market pressure .

Reformative steps to reduce outstanding receivables of infrastructure companies from PSUs through speedy dispute resolution process can also be helpful. Additional measures to put pressure on state governments to take care of the financial health of state electricity boards, and any possible announcement of abolishing long-term capital gains tax in equities, possibly by changing the definition of long-term to three or five years, are some Other important announcements to brighten the market

On the expenditure side, higher capital expenditure allocation for infra and defense may help boost sentiments. Changes in tax slabs at direct tax rates or increasing limits for exemptions (medical insurance or 80G) to ensure more money to individuals can boost the consumption sector.

Conversely, which budget announcements can improve Indian indices?

A significant increase in social spending through subsidies could correct the indices, bearing the fiscal consolidation roadmap of the government. Besides, increasing the holding period for equities to be classified for long-term capital gains tax without reducing the tax rate, and moving forward on the idea of ​​Universal Basic Income could improve Indian indices.

What are your expectations from this budget?

On the expenditure side, substantial investment in infrastructure development and higher capex in defense should be expected, with the majority reserved for domestic sourcing. Important steps to promote investment in manufacturing by private sector by providing PLI benefits to more sectors and a roadmap to reduce corporate tax rates A long way to improve job creation, increase exports and boost economic growth will decide.

The Finance Minister may announce further steps to practically link local mandis with the e-NAM network with the support of State Governments to improve farmer income. We also expect the government to stick to its fiscal consolidation roadmap, and any shortfall should be made up for capacity building that will enhance the long-term growth potential of our economy.

Which sectors have the maximum focus in this budget?

We expect manufacturers, fertilizers and agro-chemicals to be given special attention in the upcoming budget.

What are your views on capital gains tax? Should they be tampered with?

There is talk of harmonizing capital gains taxes across all investment instruments with respect to rates and tenure, and we need to see the government’s approach towards this move. In our view, equity markets provide risk capital to entrepreneurs and should be encouraged by lower taxation. The government should encourage investors to stay invested in equity for the long term and eliminate long term capital gains.

How can the budget help in boosting the manufacturing sector?

We believe that the government should extend the PLI schemes to other sectors, which can help attract investments in those sectors. Lowering corporate tax rates could help India capture a higher share of manufacturing, which is currently overtaking China. Also, reducing the compliance burden and simplification of approval process and clearances can go a long way in boosting the manufacturing sector. Additionally, the insertion of a Made-in-India clause for procurement is another way where the budget can help identify products that are currently imported but can be manufactured in India or at least for government tenders.

Do you think there will be any important announcement regarding the auto industry this year?

We do not think that there will be anything special for the auto industry in the upcoming budget.

With the Budget in mind and another hike in rates expected in February, would you recommend investors to shift to fixed-income assets?

We believe equity markets are suitable for long term investment and wealth creation. Market volatility, as we saw last year, should be used to increase the equity allocation in the overall portfolio. Similarly, if there is any short term volatility due to upcoming budget or rate hike, it is advisable to increase equity allocation to generate long term wealth.

One important piece of advice you would give to new investors

Investing in equity is one of the best ways for an individual to generate long term wealth. But, it is also important to be disciplined and invest with a long term investment horizon. If you do not have the time to research the markets and stocks, it is always a good idea to seek professional help.