Demonetization and then now hinting on higher tax rates on Long-term capital gains.What the heck is PM Narendra Modi doing?
In the present situation, it is legitimate to ask these questions as these will take the stock market very down.
Sales of many companies dropped due to demonetization.The reality sector is at a stand still.The diamond sector is also affected.
The next quarter results are going to be very bad and this will take the market farther down most probably.
Today PM Modi while inaugurating National Institute of securities market said that the people who gain from financial markets have to pay more taxes.
This statement hinted that you will have to pay taxes on long-term capital gains. This statement came just 2 months before the budget.
The culmination of Demonetization as well as tax reforms are both negative for the stock market in the short term.
There will be a further correction in the market due to all these.
But as Narendra Modi said short term pain will be followed by long-term gain, there is a good possibility that we will see a long-term bull run after a phase of correction.
The immediate situation of the companies are very grave.Due to demonetization, the consumer spendings has decreased leading to fall in the sales.
Many sectors such as the realty sector which used to do all its dealings in cash are badly hit.The jewelry sector is also badly affected
On the other hand, the banks which were not adequately capitalized got a boost due to demonetization.
This will lead to securing easy loans from the banks.
Narendra Modi also wants a cashless economy. I heard him saying that this will benefit us in many ways.
He was giving an example that suppose a vegetable reseller wants a loan of Rs. 20,000 immediately from the bank for purchasing vegetables.He can apply for that through his mobile phone.The bank can check his last account transactions based on which it can take a decision in 1 minute. But today applying for a loan through banks is a hefty task. No doubt he is correct.
Now think of the economic growth that it will drive if we can achieve cashless economy. Loans are important factors for economic growth.Without easy and affordable loans, economic growth is not possible.
All these measures are being taken by the government in order to get a good amount of tax cut.
If the government get a good cut on tax, it will be able to spend the money in building the infrastructure of our country.
Good infrastructure will lead further to a good business environment and further boost our economy.
As far as the long-term capital gain tax is concerned, this will be a serious blow for the investors.This will have a negative implication on the stock market immediately. But gradually people will get used to it.
As Narendra Modi calls it the short pain for long term gain, I want to put the conclusion the same. While the immediate perspectives are very dark, but the long-term perspectives are very bright.As
Night is darkest before the dawn.
So is the case now.I will like to conclude by saying that we will see the biggest bull run in the history of Indian stock market after the dust settles.