'Budget is becoming more about fiscal management and less about policy'

Vetri Subramaniam

The initial reaction in the stock market to the Budget has been negative and the reason for that is not too difficult to find- the hikes in personal and corporate taxes. In my experience on the day of the Budget, the direction of the market is always the opposite to the direction of personal/corporate taxes.

I think the fate of the equity markets will be determined by the fundamentals and prospects for companies, not by pronouncements in the Budget. There is reason to believe that the health of the economy is improving and hence reason to be positive.

Insurance been slapped with a service charge because it is part of their effort to increase the service tax net. This is important to do because the manufacturing sector bears a disproportionate share of the burden of indirect taxes.

No real beneficiary. Perhaps the years when we could expect to see beneficiaries or significant losers from the Budget are behind us. Frankly, the Budget is becoming more and more about fiscal management and less about policy.

The finance minister has offered the entertainment industry some sops. But I don't think the sops by themselves will significantly alter the investment outlook for the sector.

It is unlikely that following the Budget, there will be positive inflows into equity funds. In my opinion, fund flows into mutual funds are determined by two factors- the fundamentals (rather the the perception of the fundamentals) and the sentiment.

To the extent that this is a not a feel good Budget it is negative for sentiment. However, with the perception of fundamentals improving we could see flows pick up later.

Prima facie I cannot think of any single stock that has now become attractive because of something in the Budget. However, one stock that has come out unscathed after the Budget is ITC, beacuse the government has not hiked taxes on cigarettes. This could augur well for cigarette volumes next year and ITC would benefit from this. I should disclose that this stock figures among our top holdings in two of our funds.

Vetri Subramaniam is senior vice president, Kotak Mahindra Mutual Fund.

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