Union Budget 2021: Why the Sensex is Rising

The Finance Minister Nirmala Sitharaman presented the Union Budget on February 01 2021. The BSE Sensex shot up by more than 2,300 points giving a thumbs up to the Budget. You would find the market rally driven by auto, banking and financial stocks. It is just the fourth time in the past 10 years where stock markets have closed in positive territory after the Union Budget’s proposals. However, why is the Sensex rising after the Union Budget 2021?

FDI limit in insurance hiked to 74%

The Finance Minister proposed to increase the FDI (Foreign Direct Investment) limit in insurance, from 49% to 74%. It could help increase insurance penetration which shows the development of the insurance sector in India. You would find life insurance penetration in India at 3.6% of the GDP compared to a world average of 7.13%. General insurance has a penetration of only 0.94% of GDP compared to a global average of 2.88%.

After the coronavirus pandemic, many Indian partners of insurance companies could not invest additional capital into the business. You could find foreign inflows in the insurance sector rising after the hike in the FDI limit in insurance to 74%. Insurance is a capital-intensive business, and the FDI hike in insurance allows foreign promoters to infuse capital to conserve solvency margins. However, the Insurance Act would be upgraded to allow foreign ownership in the insurance sector with safeguards.

Insurance penetration must be increased in India after the coronavirus pandemic. You would find the FDI hike in insurance infusing capital into the insurance sector. It would bring the latest technologies into the insurance space, and you would get access to low-cost insurance products. 

Vehicle scrappage policy

The Finance Minister introduced a voluntary vehicle scrappage policy in the Union Budget 2021. It could phase out commercial vehicles and personal vehicles older than 15 and 20 years, respectively. Commercial and private cars would have to undergo a fitness test at an automated fitness centre. 

You may find the voluntary vehicle scrappage policy, boosting the sale of newer environment-friendly vehicles that is good for India’s auto sector. It could promote the use of fuel-efficient cars and slash India’s massive crude oil import bill. 

Boost for affordable housing

The Union Budget 2021 has boosted affordable housing in India. You would find the affordable housing segment dominating the real estate space in 2020. It accounted for more than 50% of new real estate launches and can revive the real estate sector, after the coronavirus pandemic. 

The Finance Minister has extended the period for taking loans to buy affordable houses by one more year from March 31, 2021, to March 31, 2022. You get a tax deduction under Section 80EEA of the Income Tax Act, on interest payable for a home loan, up to Rs 1.5 lakh per financial year, availed for buying a residential house property. Over and above the tax benefit, you get under Section 24(b) for interest on housing loan for self-occupied and rented properties. 

You may avail the Section 80EEA tax deduction only on a house property with stamp duty value up to Rs 45 lakh. You get more time to avail the additional tax benefit if you are buying an affordable house after the Union Budget 2021. 

LIC IPO

The Finance Minister has said that LIC (Life Insurance Corporation of India) would go for an IPO in FY2021-22. It could be the largest share sale on the Indian stock market. The LIC IPO may be conducted in tranches, and the government could divest a 25% stake through the initial public offer. The government currently owns 100% of the stake in LIC. It would also privatise two PSU banks and one general insurance company. 

The Union Budget 2021 had no changes in direct taxes. It did not touch the STT (Securities Transaction Tax) and capital gains tax or levy a COVID tax. The Union Budget 2021 focuses on economic growth even after fiscal deficit figures’ projection at a higher range. In a nutshell, the absence of surcharge on income tax and a Covid cess increased market sentiment and boosted the Sensex. 

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in