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ESSENCE OF THE WEEK
Jan 22, 2018 | Source: AxisDirect
The equity market scaled to new highs, so did crude oil (over 70/bbl), so did 10y govt. bond yields (near 7.5%) and so did the rupee (near 63). These markers indicate an economy that is witnessing a full blown upswing.
Well, indications from the real economy, while positive, are not yet supportive of a full scaled growth bounce. We strongly believe that such a growth is impending and likely in the near future, but we are not there still.
Meanwhile the equity market is preoccupied with the budget with the discussion reduced to the probability of LTCG being implemented. We provide arguments for and against below. A rural and affordable housing push are likely to be the two biggest themes in the budget, which is being priced into expectations.
Bond markets got a flurry of good news in the form of higher tax collections, lower government borrowing, further RBI dividends and possibility of divestment target being exceeded with sale of HPCL.
However, fixed income markets are seemingly in denial about healthy fiscal position. Maybe they need RBIs reassurance.
Arguments for/against on LTCG implementation
For
INR 49k cr annual potential tax according to BSE
Plug tax avoidance loop hole (shell co.s)
Mauritius tax loop hole has been plugged so no need for zero rated LTCG
Other countries have LTCG and continue to see flows
Against
Wait for DTC committee to give its final verdict
Sanguine markets help Banks recapitalize
Sanguine markets helps capex recovery (jobs)
Helps with divestments for another year
Bonds
Equity Market
Crude Oil
RBI
Essence of the Week