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'Budget will be good for mutual funds'

Dileep Madgavkar

The Budget should be good for the mutual funds sector. Dividend tax has been reduced from 20 per cent to 10 per cent, which is good news.

The Budget is growth-oriented and progressive, with regard to reforms, for sick industries and for labour reforms. It will be good news for the stock market to move forward.

Cuts in small savings are 100 bps to 150 bps. Details as to which schemes these apply to and what individual interest rate cuts will be are awaited.

The tech sector continues to do well despite worries of an international slowdown. Valuations have come off significantly. We expect the companies to do well fundamentally and expect this to be translated into stock prices.

There is an obvious benefit to all taxpayers since surcharges, except for the Gujarat surcharge, have been removed.

The Budget is very good news for the two wheeler and four wheeler sectors. Cuts in indirect taxes will go a long way to spur demand. The decline in interest rates will also reduce the cost of financing such acquisitions and will spur demand.

We could witness an across-the-board decline in yield curves -- both gilts and corporate -- in the debt market.

The impact on the consumer sector is positive overall.

Regarding dividend stripping in mutual funds, there has been no lock-in period specified.

The cut in excise duties should enable a significant decline in the prices of four wheelers.

Dotcom companies that do not have a viable revenue model will have no chance of revival.

It is difficult to predict whether stock prices of information technology giants like Infosys, Satyam and SSI will reach the March 2000 levels. All one can say is that these companies will continue to perform very well fundamentally and this should reflect in stock prices over time.

As the removal of surcharge applies to 2001-02, the question of a refund to salaried employees for the surcharge deducted this year does not arise.

One should not take a short-term view on mutual fund investments. As an asset class, equities provide attractive returns over a long term. Mutual funds are an ideal vehicle to invest in equities since a lot of research goes into picking stocks.

The Budget is growth-oriented and will have an impact across-the-board on sectors like auto, steel, cement, consumer products and consumer durables. Many sectors may witness top-line expansion in the coming year.

Hopefully, sector funds, especially technology sector-related funds, will perform better since there were some concerns about various levies being imposed on Information Technology companies in the Budget.

Dileep Madgavkar is chief investment officer, Prudential ICICI

Budget 2001

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