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'The increase in FII limits and retail investor preference for equity funds will augur well'

BUDGET 2000

Basudeb Sen

I think the Budget is most appropriate to the current condition of the Indian economy and its growth objectives. It is a very balanced one in terms of a trade-off between fiscal discipline and economic growth.

For the mutual funds industry, the lower interest regime signalled by the Budget as well as the increase in the limit of FII investment indicate greater demand for investment in equity-oriented MF schemes and US-64. This also means a sharp rise in values of investment by debt-oriented schemes at this point of time.

However, the rise in the rate of tax on income distribution for debt schemes and removal of 54EA and 54EB imply redesigning of schemes by MFs.

This is the beauty of this year's Budget. There is hardly any startling measure announced where there can be controversy. Even the tax on export income was largely expected and discounted by the market. So, there cannot be any reason for a rollback, rather I think there will be roll-on because the Budget clearly indicates the direction in which the government's economic measures will move. I expect a series of follow-up actions in the near future. In that sense, the approach is bold.

This year's Budget confirms the stock market expectations. No major tax hike has taken place. On the other hand, there is a clear indication of lower interest regime. Investment in growth sector has been encouraged and FMCG and cyclical are likely to get a boost in demand due to the multiplier effect. The increase in FII limits and retail investor preference for equity funds will augur well. The market may take time to absorb the full implication of the Budget. I foresee a continuation of the bullish phase in the capital market.

The overall investment direction in favour of agriculture, rural services, power, roads, telecom and urban infrastructure points to a substantial multiplier-acceleration effect. The capacity utilisation rates have improved and inventories are down. In this situation, the manufacturing sector is likely to improve its bottom lines. Many of the scrips are therefore available at low prices.

Basudeb Sen is Executive Director, Unit Trust of India.

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