In an interview, Sunil Singhania, chief investment officer of Reliance Mutual Fund, certified financial planner Gaurav Mashruwala and tax expert Kanu Doshi decipher the impact of Budget 2011 on the common man’s wallet. Edited excerpts:
Has the budget thrown open a window of opportunity? Or are you disappointed for certain sectors as far as the stock markets are concerned?
Singhania: In any policy document there will be (a) few sectors that will gain and (a) few that will lose. Thankfully, this time the losing sectors are very few. There would be (a) few companies in the special economic zones (SEZs) category who are paying less than the minimum alternate tax (MAT). Everyone will be paying the MAT tax rate; there will be some companies that will be affected. So companies in the technology sector, some in pharma, some in power will be affected. But by and large, the broad economic issues have been resolved. The street was worried about current account deficit; so this opening up of limits for bonds has been a welcome move. It will address liquidity issues, so the borrowing and lending should come down. Liquidity issues will be solved and banking will also fare well. It has also thrown open a window of opportunity for the infrastructure sector.
It wasn’t performing well, there were issues pertaining to execution. Are you now bullish?
Singhania: We are always bullish on the infrastructure sector. If we are going to become a $6 trillion economy, we are not going to get there till we have the infrastructure to support the growth. I think this $20 billion additional borrowing, which can come from foreign investors, can kick-start projects and provide the much needed liquidity. That is one sector that will always be one of our favourites.
Give me two or three sectors that you’re bullish on. You already said infrastructure.
Singhania: Banking sector looks good, and there will be some consumer sectors like auto. People were expecting excise duty to be raised and that has not happened. So now companies have some leverage to some extent to pass on the hikes in raw material prices. And the demand has been very buoyant.
What about the negative sectors? You mentioned the companies with SEZs... Any other sectors that have been short-changed, and that you’re going to relook at now?
Singhania: There have been some sectors that have been negatively impacted. Cement is one sector; it has been affected slightly. That is one sector where there is concern. We don’t see anything that is drastic in the budget or which is a negative.
Doshi, tax is something we all look forward to when the budget comes. This time around, the finance minister was constrained with the direct taxes code (DTC). He has not done much except raise the exemption limit to Rs1,80,000. Are you disappointed?
Doshi: He could have done more. As an accountant when I look at it, it’s an accountant’s budget. He has given away Rs11,500 crore on direct taxes and has collected Rs11,300 crore. And like a good accountant, he has tweaked certain things.
What about individuals?
Doshi: As you said Rs1,60,000 has become Rs1,80,000. For women it’s still Rs1,90,000 and for senior citizens it’s Rs2,40,000 to Rs2,50,000. And he’s brought in a new category of what he calls “very senior citizens”. And for that basic exemption is Rs5 lakh.
What about reducing the definition of senior citizens from 65 to 60?
Doshi: It will benefit several people, particularly those who are retiring; they would be very happy. They would have retired at 58 or 60 but not be senior citizens. Now they are eligible.
The finance minister has said that on 1 April 2012, DTC will be introduced. Certain benefits like equity-linked savings scheme (ELSS) will go away. What would happen if I’m already invested? Would my fresh premiums be subject to that? Or am I safe?
Doshi: When ELSS goes away, you stop contributing. What you’ve contributed is fine. The income from that is exempt. Capital gain on that is also exempt. Long-term capital gains on equities will be exempt. So on that front, there is nothing to worry. But further contribution will not qualify because you’re not part of those items.
So what you have invested is fine.
Doshi: But there is one more point to note. For life insurance premium, today your premium should not exceed 20% of the sum insured. In DTC they’re bringing it down to 5%. That is going to be a major problem.
Gaurav, anything in the budget which makes you tell people that they will have to relook at their investments?
Mashruwala: No. On the contrary, it reiterates what we planners say. We keep saying, focus on your long-term strategies and goals. Don’t change your plans based on events that happen. Don’t do drastic changes because budget is coming or DTC is coming. There is not much here. Just tinkering here in tax, 80C extended, and insurance premium might become costly. There aren’t any major changes that one needs to do because of this budget.
In any policy document there will be few sectors that will gain and few that will lose. Thankfully, this time the losing sectors are very few
Chief investment officer, Reliance Mutual Fund
As an accountant when I look at it, it’s an accountant’s budget. He (Pranab Mukherjee) has given away Rs11,500 crore on direct taxes and has collected Rs11,300 crore
Don’t do drastic changes (in investments) because budget is coming or DTC (direct tax code) is coming...There aren’t any major changes that one needs to do because of this budget
Certified financial planner