Union Budget 2018 was more of a ‘rural and common man centric’ Budget. The Finance Minister has deftly managed to balance fiscal discipline with social and development needs of the economy. With a slew of schemes to promote agriculture, organic farming, animal husbandry, fisheries and environment, the FM has taken care of the BHARAT requirements.

On the fiscal front, the government has maintained fiscal discipline. Though there has been a slippage in the FY18 target by 30bps, but if one were to consider the FY19 target which is at 3.3%, there has been a 20bps reduction from the initial target.

One of the other notable positive was the Government taking steps to broaden the Indian corporate bond market by permitting bonds graded ‘A’ from the current ‘AA’ grade. With the Finance Minister encouraging large corporates to use bond market to finance one-fourth of their funding needs, the corporate bond market space is likely to be widened.

But indisputably the highlight of the Budget for equity markets was the introduction of long-term capital gains tax. The taxation is at 10 percent on gains arising from the transfer of listed equity shares exceeding Rs. 1 Lakh. However, what needs to be highlighted here is that the Government has carried this introduction in the most non-disruptive manner possible. The sentiment was reflected in the market as well, which closed on a flat note.

Post the Budget announcement, debt clearly emerges as an attractive asset class. Thanks to the proposed widening of corporate bond market, credit funds present an attractive investment opportunity. In terms of equity, valuations are no longer cheap with the corporate earnings yet to come around. However, at current levels, equity markets seem to have already factored in the supposed turnaround of corporate earnings.

With the equity markets likely to turn volatile at elevated levels, we are of the view that investors should consider investments into products which invest across debt and equity asset classes. In terms of market capitalization, on valuation basis, it’s large caps over mid and small caps.

In terms of sectors, infrastructure, health care and education have been the areas under spotlight, owing to the various announcements in this space. However, we are bullish on infrastructure and power utility space, IT, pharmaceuticals.

 

Nimesh Shah

MD, ICICI Prudential AMC