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Budget 2021 Reflections on Stock Markets

The budget 2021 came as a huge surprise to us. Why? Well, considering the already crippled and limp economy, India needed their Finance Minister to deliver a bold and robust budget for 2021. Many heads expected the levy of a COVID tax to be imposed, which was the rumour doing the rounds.

Yet, when Nirmala Sitharaman delivered the budget, it spelled precision and finesse rather than an expected impending doom. Budget 2021 is bold, imaginative, and has a clear vision to keep the recovery of this economy going, and in the right direction. It also cemented the fact the economic reforms and policies of this government go far and beyond the normal.

Even with the farmers’ protest, the budget was looking like another dent in the Armor of this government, which it seems to have fully recovered from. The finance and economic policy of India for this year has proven that privatization is and will continue to be on top of the agenda for next few years. Let us look at some areas and sectors of the industry where the budget impacts the said industry’s stock markets and unlisted shares.

Unlisted Shares and Their Investment Benefits

Today’s corporate conundrum has been tagged as the age of start-ups. Every other day we find an innovation, a new idea, disruptions from business model to product model business innovation which not only does well but also provides employment and a boost to the economy. Many young and upcoming companies have grown fast and steady and broken many traditional returns on investment barriers.

Most companies wanting to escalate their growth, look for an option of an IPO and go public. Going public helps them and their investors to rake up the profits and dividends that are most sought after. The maximum part of the growth though happens before the company has gone public. What is the reason for this?

Generally, the new companies start or are valued at lower price from seed stage to Pre round A – B—C…. Pre IPO and then IPO.

The advantage of early investing these companies is that an investor can catch them young and at relatively lower valuations. The above opportunities give an investor time to compound and amplify the returns in path for creating financial abundance.

Having said that, liquidity and high risk are some of the attributes to consider while buying or selling unlisted shares.
The prerequisite regulation for the company to be considered for exchange listing (NSE/BSE/MSEI) is to be in business for last 5 years and the company has to be profitable in the latest last 3 years of existence.

Effect on The Corporate Markets

The stock market emotions have been bubbling upwards since the declaration of the 2021 budget. From certain crash and burn it has maintained to stay buoyant. How? There has been no surprise tax or covid cess on the corporates. The finance minister has given an indicative growth of ~15% for financial year 2021-2022. The government has taken an aggressive stance on capital expenditure whilst also giving a clear pathway on fiscal deficit.

Most corporations have already begun to show strength and steady signs of recovery. Looking at the first quarter and the way it continues to rage forward, more than 29-30 companies in the NSE have reported not just recovery of losses but also bumper profits. This trend has outperformed the analyst’s estimation on maximum number of listed companies and thus the overall economy. The Indian GDP turned green in Q3FY21, with economy growing 0.4% on y-o-y basis.

If the implementation of the Budget 2021 announcement goes in the right direction, then it will not only increase corporate profits but also can give significant impetus to the Indian GDP.

The growth will also bring a major paradigm shift in investment cycles, equity flows, growth vs earnings comparisons, etc.

With a lot of uncertainty out of the economy, the stock market has slowly and steadily covered its deficits and gained from the COVID situation as well. The strategy has been spot-on in terms of raising money not by levying taxes but by bringing in digitization, privatization, and a substantial amount of disinvestment.

Summing It Up

Historically, the higher fiscal deficit has always been sensed negatively by the Stock Market, the only exception being this year, where although the fiscal deficit was highest after liberalisation at 9.5% of GDP in the year 2020-2021, it was the Government-backed stimulus which was the silver lining. The Budget 2021 too had the same theme to boost Indian economy led by capital expenditure, which was applauded well by the market, thus we saw one way rally on the upside for a week. This shows market do believe on the growth-oriented budget of India, continuing India’s journey towards USD 5 Tn economy.

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