Budget 2017: Sit Tight And Increase Financial Assets, Says Investment Panel

Budget 2017 has kept the status quo on tax provisions for financial assets which should encourage investors to remain steady on their financial plan, and perhaps even increase their allocations to financial assets.

Investment experts reckon that while the provision for taxation on real estate has been changed with a view to bring in more parity between asset classes, financial assets i.e. largely equities will find more favour with the investing class. “Individuals income taxes have been reduced to some extent and as far as investments go, the budget signals investors have to sit tight on their financial plan,” said Ranjeet Mudholkar, vice chairman and CEO, Financial Planning Standards Board, in
BW Businessworld’s post-budget panel discussion on investments.

Besides, Budget 2017 signals a continuation of policy of the last three year’s encouraging investors towards financial assets. Over the past few years, thanks to a lower inflation, investors are moving into financial assets.

Besides, the Budget 2017’s provisions bring more parity in the tax treatment of various asset classes. For instance, interest deduction on loans on borrowings have been limited, which brings about more parity in various financial assets. Said Mudholkar: “From an investment perspective the most damaging aspect here is that interest deductions for the second house has been capped at Rs two lakh.”

However, financial assets have been doing well over the past few years and that should continue. Pankaj Mathpal, CEO, Optima Money Managers believes liquidity will increase in financial assets. “Due to demonetization more money will come into financial assets and more people will be included in the purview of taxes. There is more scope in investment of financial assets,” he said.

Agrees Yogesh Bhatt, senior fund manager, ICICI Prudential Mutual Fund: “This budget has given a positive insight with respect to investment in financial assets. Financial asset class will have a very successful journey through this year as well.”

For its part, the Budget did not have any big bang reform measures, but was high on implementation, which has been reassuring to the markets. Harish Krishnan, senior fund manager, Kotak Mahindra Mutual Fund said: “It’s been a reassuring budget because and we did not expect a radical budget but rather something more practical.”

Budget 2017 stance on fiscal prudence is also expected to keep interest rates low and provides more thrust on infrastructure activity. The budget has laid out a road map targeting the fiscal deficit to 3.2 percent for FY 2017-18 and 3 percent for 2018-19. As a result, interest rates is more likely to remain on a lower trajectory. Said Yogesh Bhat: “A clear need in economic push was expected from this budget and the most credible part about the budget is the clear road map provided by the government with respect to fiscal policies.”

Earnings of equity assets are expected to rise over the next few years due to the stable policies and with the implementation of the GST. Some of the sectors that looks attractive is infrastructure and consumption. More money is expected to come in the hands of people as a result of the increase in pension outlay. Said Krishnan: “Sectors like durables can see some kind of further push thanks to the 1 rank 1 pension schemes.”