Ahead of Budget, experts advise retail investors to be more 'cautious'

Retail investors are expecting a host of changes in the Budget next month. Their major expectations include abolishing securities transaction tax (STT), increasing the TDS threshold limit for mutual fund dividends, and raising long-term capital gains exemption limit from Rs 1 lakh, among others.

However, market surveys have revealed that changes in these areas are unlikely as these regulations were introduced recently and the government would want to maintain continuity. Nonetheless, the surveys have also expressed confidence that any market unfriendly action is unlikely in the Budget as the country is still in the economic recovery phase after the onslaught of the COVID-19 pandemic.

Under such circumstances, retail investors have been advised to act from a cautious standpoint.

Further, in the wake of growing inflationary concerns and the relentless rally of stock market indices, experts advise retail investors to make investments while acknowledging that returns will be more sensitive to aspects of cyclicity and seasonality.

True Beacon and Zerodha co-founder, Nikhil Kamath, has also asked investors to be more sensitive to cyclicity and seasonality "unlike recent times". According to an Economic Times report, Kamath has asked retail investors to have a long-term approach to the market. He added that retail investors should be "selective about individual stocks".

Meanwhile, Kamath has supported the retail investors' demand for abolishing STT as taxes on both long-term capital gains and short-term capital gains are in place. He said that tax reforms around STT would add considerable value to the economy.

Separately, it is expected that the government may roll out some tax incentives for investments in infrastructure investment trusts (InvITs) to make them more attractive for both retail investors. InvITs allow investors to invest in infrastructure projects and earn a portion of the income.

Earlier, in an interview to Economic Times, former RBI governor Raghuram Rajan said the key issue in the budget was to maintain the confidence of the markets and people. He cautioned against expecting a strong economic recovery in 2022. Recovery of the global economy was beginning to flatten out and may not perform as well as previous years, he had said.

“I think there will be a slowdown in this quarter’s activity. But it will get pushed a little further. That said, I would resist the temptation to say we have seen the worst and that the virus is behind us,” he stated in an interview with ET.

Investors and consumers are expecting a strong Budget 2022 after the devastating impact of the COVID-19 on the Indian economy, AR Ramachandran, co-founder and trainer of Tips2Trades, told Business Insider.

Markets need a “reformist and pro-growth” budget, Sunil Nyati, managing director of Swastika Investmart Ltd, told Mint.

Meanwhile, some broking firms surveyed by ETMarkets.com offered top stock picks to bet on the upcoming budget. Vinod Nair, head of research at Geojit Financial Services, suggested investors bet on Biocon on hopes of increased allocation for vaccination drives and lower GST on research and clinical trials.

Vinit Bolinjkar, head of research at Ventura Securities, told EconomicTimes, investors could buy stocks of Adani Ports and SEZ which is likely to gain from the surge in India’s export-import trade. EXIM volume grew at a CAGR of 4.3 percent in the last 10 years and is expected to grow at 6 percent in the current decade on the back of policy initiatives by the government.

If the government posts a lower-than-expected fiscal deficit number for FY23 and rolls out a definitive plan for speeding up disinvestment, the stock markets may get excited, Deepak Jasani, head of retail research at HDFC Securities, told Financial Express. “Or else post a couple of days of anticipation and reaction, the indices may go back to their existing trend,” Jasani said.