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Budget likely to have major impact on stock market

  • Published at 04:23 am June 16th, 2013

The measures proposed in the budget for the Financial Year 2013-14 are likely to have far reaching consequences on the companies listed in the country’s stock exchanges according to senior analysts of different brokerage houses.

“While some sectors have reasons to cheer, others might not find relief in the measures that have been proposed in the budget,” said Ashaduduzaman Riadh, research-in-charge at Lanka Bangla Securities Ltd.

He said though budgetary measures are conducive to macro and capital market, political uncertainty is the single biggest systematic risk in the horizon to rattle the sentiment of investors again.

The impact of the proposed budget is expected to be positive on the ceramic, cement and energy sectors but is expected to put added pressure on the telecommunications, tobacco and banking sectors.

The major incentives, previously given in the current fiscal for the capital market, are to be continued for the new fiscal year with some additional incentives.

Analysts believe that the declared incentives will help the primary market, open-end mutual funds and retail investors more directly.

The investment ceiling as a percentage of total income has been increased to 30% from 20%. In that case, the proposed tax rebate would be 15% against the existing 10%. It is likely to foster individual investments in the capital market in the future.

The budget proposed to rescind the existing provision of charging 3% tax on premium over face value of shares of a company. This will reduce floating cost of issuers and will enhance supply side of the capital market.

The current tax rate of 0.05% at source from total income on bond sales is to be repealed according to the proposed budget. This will reduce transaction costs for bond buyers and sellers. A 15% tax rebate on investment in public mutual funds has been proposed. This is likely to boost demand for mutual funds.

The proposal to increase the threshold of tax exempted income from dividends to Tk10,000 from the existing Tk5,000 will encourage investment in cash dividend paying stocks.

The existing provision of exemption on gain tax will continue for individual investors. However the 10% tax on capital gains for the companies and firms will continue for the next financial year.

There were no clear directions about allowing black money to be whitened by investing in the capital market in the announced budget. However, in the post-budget press conference the finance minister gave a hint of allowing it at a 10% tax rate.