A tour of new features

No big bang announcement on capital

markets. The undertone is positive and market
will move upwards short term
- Ramesh Damani
(MD, Ramesh Damani Finance)

Focus of the Budget

1 # FISCAL DEFICIT
What
When
Why
FRBM
Impact
What has the govt. done

about this
Critisicms ( crisil n

GOVERNMENT

EXPENDITUREs

GOVERNMENT
EARNINGS

Superior Text
2# Productive Spending
What needs to be done
Impact on infrastructure,

healthcare and education

Kerning
Character S p a c i n g

Styled Underline
Strikethrough

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3# boost revenue

Soft Shadow

Implementation of GST

reason
Tax structure

Reflection

4# Disinvestment

Bevel

Picture This
Fiscal Deficit: The Government kept the
fiscal deficit target of 4.1% for FY15, while
following the Kelkar committee
recommendation to reduce it to 3.6% in
FY16 and 3.0% in
FY17. No concrete plan has been laid down
on how the target would be achieved.
No to spending cuts: The Finance
Minister indicated that the Government
could not rely
only on spending cuts to reduce the budget
deficit and should also work to spur
economic
growth back to 7%-8%, which would result
in higher tax revenue. The objective is to
increase growth which in turn would lower
fiscal deficit as a % of GDP

The Government has proposed a

uniform KYC (Know Your Customer)
norm with inter

Operate

usability of the KYC records across

the entire financial sector and a
single demat account

so that consumers can access and

transact all financial assets through
this one account.
The Government has proposed
International settlement of Indian
debt securities and has
completely revamped the Indian
Depository Receipt (IDR) scheme.
Liberalising the ADR (American

Change

Business
Process

Optimize

Support

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. The increase in deduction under Section 80 C to Rs.
1.5 lakh brings cheer to Equity Linked
Savings Schemes.
The move to increase the holding period for long
term capital gains tax for fixed income
funds from 12 months to 36 months has tax
implications for investors in Debt Mutual Fund
schemes. The applicable tax rate on long-term
capital gains, will now be 20 per cent on the
nominal long term capital gains indexed for
inflation.
The Finance Minister removed an anomaly in DDT
where effective tax rate was lower than
the actual tax rate. Investors earning dividend
income will receive lower dividend post the
DDT amendment. This is applicable from 1st
October 2014.
I

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Equity Market Outlook
The Union budget of 2014-15 did not roll out any big bang reforms but has certainly has
provided a roadmap for the way ahead. It has largely been a balancing act between reducing
fiscal deficit and providing growth impetus to boost GDP growth. The Government retained the
fiscal deficit target of 4.1% of GDP for this fiscal (as estimated in the Interim Budget in February)
and also set a target to achieve a lower fiscal deficit of 3.6% in 2015-16 and 3% in 2016-17.
Market participants would have liked much more clarity on how this target would be achieved.
The thrust on agriculture continues with farm credit target at Rs. 8 lakh crore. It attempts to
provide a boost to consumption & savings through enhancement of standard deduction, higher
housing loan deduction with cut in excise and customs on certain products.
The Budget has set the divestment target for the current fiscal at Rs. 58,425 crore. This includes
Rs. 43,425 crore from selling stake in PSUs and another Rs. 15,000 crore from sale of residual
stake in the erstwhile government companies. If the market remains buoyant this target seems
achievable.
In the near term as the euphoria of the Union budget subsides in, near term earnings may drive
the market forward. First quarter earnings of FY15 have started to arrive and this could be the
driving force for the market in the near term. Market participants will be closely following
developments on the monsoon front. Macro indicators like WPI, CPI and IIP will be keenly
watched as it is likely to provide directions for the next Bi-monthly Monetary Policy Review due
in August.
On the Global front, financial health of the European banking system is once again under
question after signs of financial stress in Portugal lead global equity markets lower.Fixed Income Market Outlook
In the current fiscal, the Government will borrow Rs. 6 lakh crore, up from Rs. 5.63 lakh
crore last year and marginally up from Rs. 5.97 lakh crore announced in Interim budget,
as it repays past liabilities and uses debt to bridge revenue shortfall. However, the net
borrowings will be Rs. 4,61,204 crore, after considering repayments of past loans and
interests. This is nearly Rs. 7,700 crore lower than Rs. 4,68,901 crore in 2013-14 and
higher by Rs. 3,884 crore from Interim budget.
Although Union budget of 2014-15 has maintained the 4.1% fiscal deficit target, lack of
clarity on how the target would be achieved will result in uncertainty. In the near term ,
bond yields are expected to remain range-bound with an upward bias.
In the near term market participants will be keenly watching macro economic data which
will provide directions on what will be happening in the upcoming bi-monthly monetary
policy review in August. Any uptick in either headline or consumer price inflation could
be deterrent for the market. Inflation is expected to fall due to favourable base effect in

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