The much-awaited election results are out and the clear mandate to United Progressive Alliance (UPA) that has emerged, perhaps surprisingly, promises stability in governance and economic policies with continuation of financial sector reforms — all good news for households’ personal finances.
For starters, the new government may look to increasing the income tax exemption limit from the present Rs 150,000 to
Rs 250,000. This will bring disposable income in the hands of households and help perk up consumer demand.
Another area the government may look at is to double the income tax exemption limit for the individual taxpayer under Section 80C from Rs 100,000 to Rs 200,000. In such a scenario, young investors should look at expanding equity exposure and invest in equity-oriented tax saving instruments while saving taxes.
“If that happens equity investment is recommended for additional investment in tax saving instruments,” said Surya Bhatia, a Delhi-based financial planner. “This is because a stable government will lead to stable policy formation and higher inflow of foreign institutional investors money that will boost the equity markets.”
On a broader level, financial sector reforms are likely to go through, of which one would be to raise the foreign direct investment (FDI) limit in several restricted sectors like insurance and multi-brand retail. Market experts are of the opinion that this would boost the equity market in India and make the markets more stable.
What’s in for investors?
Stability in itself sounds good news for investors — no dilly-dallying on economic policy, no outside influences to pull back and so on. “Even as global concerns are round the corner at least the concerns on the political stability is off and that will boost the market,” said Anup Bagchi, executive director, ICICI Securities.
Investors should continue with their ongoing monthly investments in the equity markets in the form of the systematic investment plans (SIPs). With a stable reform process that will boost the industry, your investments should fetch you decent returns over a three- to five-year horizon.
Also, since market analysts are expecting a speedy recovery for the economy and the markets over the next two quarters, even new investors should look to open up their equity exposure as the markets appear set for a revival over the coming six to nine months.