Budget may reduce tax on dividends & share buybacks: G Chokkalingam

G Chokkalingam, Founder & Head of Research at Equinomics Research, expects the Union Budget 2025 could reduce tax on dividends and share buybacks, aiming to boost investor sentiments and bring some stability to the market. "The government may give significant concessions to the middle class in terms of Personal Income tax and the same could boost the aggregate demand in the economy to some extent," he added.

"We expect today the budget to give a credible focus on slowdown in the aggregate demand and thereby, address slowdown in overall GDP growth. Unfortunately, the equity market shed over Rs 60 lakh crore of market cap from its record high level seen in September 2024. Of course, it is not the job of the government to prevent market cap erosion. However, the fall in equity wealth is so huge that it may impact the aggregate demand in the system, especially in sectors like real estate, automobiles, lumpy consumer durables, etc. Hence, we expect some measures from the budget to boost sentiments in the capital markets as well. The budget may give priority to growth and make little compromise on fiscal prudence in the light of growth slowdown," Chokkalingam also said.

"Often the market has become highly volatile on the Budget day. Today may not be an exception in case the market doesn't perceive Budget measures positively. In such a possible scenario, market volatility could be possibly huge today post Budget presentation as the FIIs (Foreign Institutional Investors) have been continuously selling the domestic equities, rupee remains weak and also so far, corporate earnings are not that impressive," the market expert further stated.

Even if FIIs don't turn back as significant buyers of Indian equities in the short term, Chokkalingam anticipates new retail investors will continue pouring into the domestic markets and largely focus on SMC (small- and mid-cap) stocks.

He underscored that FIIs' focus has been largely on large caps and their selling is unlikely to be dominant in quality SMC stocks.

"Manage the risk in the equity asset class by keeping at least 30 per cent of your financial wealth in fixed income securities; allocating at least 30 per cent of equity wealth in the large-cap segment; also, by not investing borrowed money; and don't keep rising equity asset allocation, if you have significant debt already," Chokkalingam advised.