Dalal Street is in for exciting times in 2020, if the government, which is reported to be considering rolling back or rationalising a host of taxation on securities transactions, are finally realised. While challenges from the year gone are likely to spill over to 2020, a good boost of fiscal stimulus is just what the doctor ordered for fast market recovery.
Here’s what you can anticipate for the stock markets in 2020:
As reports go about the government is holding serious consultations on reintroducing Section 88E, reducing securities transaction tax, exempting listed shares from long term capital gains tax (LTCG) as well as withdrawal of dividend distribution tax (DDT).
Among all, the first two issues i.e., reintroducing Section 88E, reducing STT are pivotal for the growth of capital markets. STT is an increasing cost of transactions in India. As per a World Bank study, India’s turnover to market cap ratio has fallen by over 43% from 101 in 2004 to 58 in 2018. STT greatly increases the cost of a transaction, bid-ask spread and impact cost for investors and greatly reduces the liquidity and volumes. Besides, till March 2008, STT was treated as tax rebate u/s 88E whereby the impact of STT was cushioned to some extent. However, 88E withdrawal & consequent double taxation completely broke the back of the market and caused a huge fall in volume & STT from 2007-08 onwards till 2015-16.
The market participants are waiting with bated breath for the upcoming Union Budget. We believe, that these long-standing demands by equity participants would be finally realised and this would be a landmark budget, one which will propel the stock markets towards sustainable growth.
The government is likely to bring measures to enable channelizing of household savings for investment in equity by providing encouragement for the same. There could be incentives provided by the government to raise risk capital/equity for recapitalizing public sector banks, disinvestment in government companies and designated projects of national importance.
The emergence of ETFs for equity indexes, gold and now, bonds will offer new opportunities for investors. The emergence of real estate investment trust (REITS) & An Infrastructure Investment Trust (InvITs) as tradable instruments in the market are likely to receive greater traction in 2020.
It is expected that a large number of bonds and debentures with a minimum rating of “AA” will be offered via the capital markets to park their savings at higher rates of interest than bank deposits with the additional benefit of liquidity.
(The author is President at ANMI. The views expressed are the author’s own)