No need to change LTCG regime in Budget 2019: Darshan Bhatt

Consumer demand can be given a boost by creating jobs and raising farm income while investment can be increased by providing incentives such as tax holidays and cutting corporate tax rates, says Darshan Bhatt - Co-Founder & Deputy Chief Investment Officer, at US-based Glovista Investments LLC. Excerpts from interview with ETMarkets.com

The government is hard-pressed to address the growth slowdown. What are the key things the finance minister FM can do in the Budget to turn the tide?
In the upcoming budget, the finance minister has to balance the need for focusing on promoting growth and employment via fiscal measures while preserving fiscal discipline. Globally, growth is slowing down owing to the impact on corporate sentiment from trade tensions between the USA and China. Most central banks including the Federal Reserve and the ECB have indicated that more monetary stimulus is forthcoming.

In this environment, the Indian government has to step in and provide support via fiscal stimulus to the economy. The economy requires measures to boost overall growth, employment (both farm and non-farm sector) and corporate profitability. The challenge for the finance minister is to achieve this while maintaining fiscal discipline.


Going by market behaviour in the run-up to the Budget, it seems like Dalal Street is not expecting anything big. Which sectors do you think will get a boost from this Budget?
The weakness in the Indian market has been mainly driven by global growth slowdown, rise in crude prices (owing to increased geopolitical risks) as well as continued NPA related issues in the banking sector. From a budget perspective, cyclical sectors such as autos, real estate, technology and consumer discretionary should benefit. In addition, we would also expect some positive developments for the banking sector.

What steps can the FM take to arrest the slowdown in economic growth?
The FM needs to boost demand and investment in the economy. The increase in consumer demand can be achieved mainly by taking measures to boost employment and farm income while investment can be increased by providing incentives such as tax holidays for investment as well as a cut in corporate tax rates.

How should the sectoral bias in one’s portfolio look like, as he/she navigates the current state of economy and markets?
We favour a cyclical tilt within the portfolio by being overweight on autos, consumer discretionary (retail), and technology sectors, while also owing the banking sector on a select basis.

Do you think the FM will tinker with LTCG tax? Why or why not?
Our belief is that FM should not change the LTCG regime as the overall taxes are in-line with most developed countries. Capital gains tax regime in India is not the reason for weak investment or demand in the economy.

What is your wish list for the budget?
The Finance Minister should cut corporate tax rates, increase the exemption limit for personal taxes and introduce tax incentives for investments, especially in the manufacturing sector and introduce measures to boost employment as well as farm income. On the fiscal side, we think the market participants would not mind maintaining the fiscal deficit at the same level as last year.