The events post Union Budget 2019 has provided a blueprint on why the country desperately needs a very strong opposition to emerge.
The stock market has been on a very shaky ground post Union Budget 2019. The S&P BSE Sensex and CNX Nifty dropped 4.5% and 4.8% respectively since July 3, 2019. Further, the S&P BSE Midcap and S&P BSE Smallcap Index plummeted by 6.5% and 8.1% respectively during the period.
What was the reason for this drop? No prices for guessing – Union Budget 2019. The fineprint in the budget revealed the following things which did not go down well with the market participants:
Government decided to levy 20% tax on buyback of shares
Previously, the buyback of shares did not attract tax and therefore many companies used this tool to create wealth for shareholders. However, the imposition of tax will discourage the companies to adopt this route going forward.
Surcharge on Non-Corporate FPIs
The surcharge introduced by the Government on HNIs and ultra-HNIs also extended to non-corporate Foreign Portfolio Investors- FPI (registered as trusts). The same would led to increase in effective tax incidence from around 36% to 42%)
Aggressive estimates for tax collections
The Government has estimated the corporate tax collections collections to increase by 14% on-year to INR 7.66 trillion and total tax collections to rise by 11.2% on-year in fiscal 2019-20. The fulfillment of this target will be a tough grind for the Government and inability to achieve these targets will put pressure on fiscal deficit targets
Therefore, immediately after the Budget, negative sentiment started gripping the stock markets. There was also some confusion regarding the taxation to FPIs. There was a word on the street that surcharge would not extend to FPIs registered as trustees. However, what followed was perhaps much worse and tending towards ‘arrogance’ by the ruling party.
In an eagerly awaited press conference , the Finance Minister said there were no plans of rolling back the surcharge on FPI. But, the statement that followed ridiculed the market (as witnessed on social media). “I do track the markets but I keep moving. I do not want them to affect my calms. I think it will take a while for me to get carried away by all that (markets). ” The message /sentiment that echoed on the market was this- ‘The FM cares little about stock markets’. This was certainly not the message the domestic and global investors wanted to hear from the new Finance Minister. The continuous selling by FPIs confirmed the impending negative sentiment
Post this, there were some very relevant questions raised by ex- Finance Minister Mr. P Chidambaram in the Parliament. However, the weightage of any Congressman’s words today is equivalent to current worth of a smallcap in the stock markets. So what followed? Fund Managers, Market Experts, Economists donned the hat of opposition and started criticizing the Government on various forums for tax surcharge, lack of reforms to push infrastructure growth, etc . But, the impact of pressure exerted by such experts is equivalent to the impact this blogger can have on stock market levels.
What have we learnt? The country badly needs a opposition of substance to question the Government. The situation demanded a credible leader in opposition to stand-up and seek answers from the Government. The end result would have been same. But the ruling party would have been on their toes and refrained from comments such as “I do not let stock markets affect me.” Currently, there is no voice of criticism the Government is worried about!
But the bigger question is – Who will be that voice in the opposition? For currently, we do not have any!