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Posted on 31-Jan-2020 Comments  0

Weekly Capsule (Jan 27 – Jan 31) and Impact Analysis

News Announcement Impact Analysis

Fiscal deficit spills by 50 bps on the upside for the next two fiscal years Budget has set fiscal deficit at 3.8% for FY19-20 and at 3.5% for the fiscal year 2020-21

Experts are concerned that even these targets of fiscal deficit may be hard to achieve and likely to spill over

Budget 2020 scraps the dividend distribution tax on equities Instead of DDT, the dividends will now be taxed as other income at peak rates in the hands of the investors

However, the DDT on debt funds will continue as before with only equity and equity funds exempted from DDT

Budget 2020 offers two different regimes of taxation to opt for Individuals can choose to continue with the exiting direct regime of higher tax rates and exemptions

Alternatively, tax payers can also opt for the new lower rates but will have to forgo 70 out of the 100 exemptions

Budget largely silent on the scrapping of the long term capital gains tax Budget was broadly expected to scrap the LTTCG tax and continue with the STT system as before

However, due to the resource constraints, the government has chosen to continue with the LTCG tax

Government proposes to give Rs.40,000 crore boost to consumption The tax saving from lower direct taxes was supposed to cost the government close to Rs.40,000 crore

With a marginal propensity to consume of 0.70, this was supposed to trigger consumption impact of Rs.1.33 trillion

Budget 2020 sets disinvestment target of Rs.210,000 crore for 2020-21 This includes the mega plan to divest part of the LIC stake which is being valued at close to $150 billion

Ironically, the government has lowered the divestment target for 2019-20 from Rs.105,000 crore to Rs.65,00 crore

FPIs remain net buyers in equity to the tune of Rs.12,100 crore in equities This was almost fully compensated by Rs.11,100 crore selling in debt on higher inflation and lower real rates

FPIs have infused close to Rs.60,000 crore in the last four months since the corporate tax was reduced

China to provide stimulus of $175 billion to support markets This has been necessitated due to the negative impact of the rapidly spreading Corona Virus

The pandemic has already resulted in over 250 deaths and is likely to impact more than 1 lakh people across the world

Companies with large promoter stakes could give out dividend bonanza This could be a move to avoid the much steeper 43.5% tax that promoters may have to pay on dividends post April

They may find the DDT methodology better as it entails a lower implicit tax rate of just about 20.56%

Insurance and MF stocks took a hit on Saturday on Section 80C limitations Under the new regime, taxpayers will have the option to pay lower tax without claiming Section 80C benefits

Section 80C of the IT Act has been a major driver for the demand for life insurance policies and ELSS funds

IT companies could benefit from data centre STPs permitted This would be on the lines of the software technology parks that are already permitted in India

In addition, the Chinese virus also raised fears that demand could see a slowdown across China and most of Asia

FM says sovereign guarantee on LIC policies will continue FM has assured that the divestment of partial stake in LIC will not in any way impact the sovereign guarantee on policies

However, that will be easier said than done because with a weaker balance sheet, this means contingent costs

After the success of first tranche, government plans second Debt ETF Debt ETF has been an interesting passive debt fund investment option offered by the government

This offers the government an opportunity to sell its G-Secs to the retail investors at large

All eyes likely to be on the RBI policy this week, but status quo expected With the inflation at 7.35% and growth dipping, the MPC may choose to maintain status quo on the repo rates

While there are talks of a rate hike, the MPC may not attempt at this point when the focus is on boosting consumption

Deposit insurance hiked from Rs.1 lakh to Rs.5 lakh per depositor This change has been clearly necessitated after the recent PMC Cooperative Bank fiasco earlier last year

Of course, this will be more relevant to smaller banks as RBI normally does not allow larger banks to fail

Rahul Bajaj decides to hang up his boots after nearly 50 years at the helm While Rajiv Bajaj has been running Bajaj Auto for 15 years now, this is the first time Rahul Bajaj will take non-exec role

In the last few quarters, Bajaj Auto has been the best performer on the back of its exports focus

Tata Motors managed to turn around from losses to profits in Dec-19 The profits were largely driven by the recovery in global demand for JLR cars, especially from China

However, the domestic auto business of Tata Motors continue to remain under demand pressures

US 2019 GDP growth comes in at just about 2.3% This makes the growth far lower than the 3% growth that was being targeted by the US policy makers

The US has been reeling under the onslaught of the trade war and Chinese retaliation had led to the slowdown

ED discovers Rs.12,700 crore money launder by DHFL promoters The ED has already taken Mr. Wadhawan into custody over the round tripping of investor funds

The modus operandi was to launder money through fictitious home loan accounts of non-existent persons

UK left the EU and it happened without much ado on 31st January The real challenge for Britain would be to stitch trade pacts with European partners on favourable terms

However, UK has an advantage in that it holds access to the world financial markets via London

US yield curve inverted once again during the previous week Normally, the inverted yield curve is an indication of an impending slowdown in the economy

However, this has repeated often in the last two years leading to hopes that this would once again be an aberration only



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