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Chat Transcript

Udayan Mukherjee

Is this the Budget the Market was hoping for


Questions Answered


guest: How do read market tomorrow after having detailed budget fine print?

Udayan Mukherjee: Hi, Good morning to all MC viewers. Looks shaky to me. Yesterday, the market managed to ward off the blues somehow, but the day after, it looks a bit sombre. The LTCG would have dampened investor sentiment, no question. Bond yields have also hardened, so that is another headwind for the stock market. All in all, not expecting a collapse but a period of subdued performance cannot be ruled out as all this gets digested.

guest: Your take on where the small and mid cap index is headed here.

Udayan Mukherjee: We have already seen a significant correction in small and mid cap stocks over the last few weeks. Large caps are outperforming. Post the LTCG, this underperformance may continue. It is tough to predict where this correction will stop as their outperformance which preceded the onset of the correction was also humongous. So, don`t be in a tearing rush to buy something which has fallen 10-12%. The opportunity is on its way, buy slowly, averaging down as stocks correct.

ashmisr: Hi, What should be the strategy of retail longterm individual investor post budgtet? And what should be the realistic expected return from equity after this event?

Udayan Mukherjee: No major change in strategy is warranted. After all, even adjusted for the LTCG, returns from the stock market should beat all other competing asset classes such as FDs, Fixed income, gold, real estate in the medium term. The only difference is that the eventual return will be taxed and therefore reduced to some extent. I still think that your expected long term annualised return from equity mutual funds should be 12-14%. Now this may or may not be the case in 2018, as last year was too good, but the average return should be around this. So, even if you get 13% average over a 5 year period and pay 10% tax, the net return of 11.7% is way above the post tax return expected from other asset classes. There are no guarantees in this game though, but it is a reasonable premise.

guest: Experts coming on TV are telling this is good better best budget. What do you have to say? Are they pro govt?

Udayan Mukherjee: Experts don`t always speak their minds on TV. You always see CEOs giving the budget a rating of 8/10 while privately they may be cursing it. Many fear that criticism may not be taken well by people in power. So, don`t always believe what you hear on TV generally, and particularly on budget day.

guest: Nope, totally irrelevant budget, feels as if we went into theatre to watch Padmavat and Secret superstar in Chinese begins on big screen

Udayan Mukherjee: hahahahahaha. that is a funny one. You say Chinese because he spoke in Hindi too ???? Like your sense of humour.

guest: as all news channels are sayin gthis budget was for rural and fmaers, how well do you agree with this

Udayan Mukherjee: Agree. But then they also needed it the most. Believe me , the situation in rural/agri India is far worse than you can imagine. They do need help. So, I support the government`s rural focus but have issues with the amount of funds they have provided for their main schemes. I fear that these may end up as promises made in a pre election year which do not see the light of day, to the extent of the promises made.

guest: FM has allocated so much money to the healthcare sector, how do you feel the country will be able to cope with the fiscal defivit

Udayan Mukherjee: No, actually he has NOT allocated such a lot of money. The promise is huge, the provision is too little. The healthcare scheme, conservatively needs funding of 1 lakh crore +, whats been provided is 4000 crores. If they actually implement it, to the extent promised. it will drill a hole in the deficit, as you suggest. That may be the reason why they have stopped short of providing exact numbers in the budget.

guest: As said in your interview with moneycontrol, it\`s a disappointing budget. Why do you feel so?

Udayan Mukherjee: No, I didn`t say that. I said "it was a disappointing budget for INVESTORS." That`s not the same thing. For investors, they now have to pay a long term capital gains tax on shares, which alters the very favourable taxation regime that was in place for many years. It is not an unfair tax in my eyes but it will disappoint investors; who wants to pay more taxes? Also, the slippage in fiscal deficit has led to bond yields hardening and rising interest rates hurts prospects for the stock market and investors. So, while the budget is good (hopefully) for farmers it would have not gone down well with investors.

guest: what to you have to say about corporate tax cut? how will it benefit small entrepeneurs like us

Udayan Mukherjee: The corporate tax cut pertains only to companies with revenues below 250 crores. So a very large number of companies listed in the stock market will not come under this ambit and thus continue to pay the earlier/high corporate tax rate. But for individual entrepreneurs in the MSME segment, this is good as you will pay much lower tax now. The saved money can be reinvested into the business, helping growth.

guest: Do you expect any correction in the market? Is the market expected to go down?

Udayan Mukherjee: It depends not only on yesterday`s budget but also on the global trend. If global markets continue to rally on, our correction will be shallow. We may underperform in the near term, ina relative sense but a very deep sell off is unlikely. However, if there is a global correction then a combination of global weakness plus the LTCG and fear of rising interest rates can trigger an overdue correction which is fairly substantial. Ok, good bye for now. Hope to chat with you again later in the month. Good luck. Udayan
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