The Hindu Business Line : Capital gains sop extension welcomed

THE extension of capital gains exemption for retail investments in listed equities has been hailed as a welcome move that will increase participation in the equity markets.As per this extension, investors who hold equities that are part of BSE-500 for more than a year need not pay long-term capital gains tax. This rule, introduced to add stability to the market, was earlier due to lapse on February 28 but is now valid till March 2007.

Mr C. Jayaram, Executive Director, Kotak Mahindra, said the market was not expecting the extension to be for more than a year. "The Finance Minister's announcement was a pleasant surprise. It helps add stability to decision making. The initiative was started off at some point to encourage retail participation, and needs to be continued so that there is a build up of momentum in small investors' involvement in the market."

Mr Ashim Syal, Chief Investment Officer, ING Vysya MF, said the restriction of this incentive to the BSE-500 companies is a logical move: "The BSE-500 covers the good, investable universe. The rule acts as an incentive to retail investors, without allowing any group of individuals to take advantage of the legislation for mere tax saving purposes."

Mr Sharad Shukla, Head - Investment Advisory Services, IL&FS Investsmart, emphasised that this will help the development of equity cult in the country. He pointed out that the benefit will accrue only to direct investments by equity investors.

Mutual funds have been asking for parity in tax between fund investments and individual investments and were hopeful that this would be announced in the interim budget. The Finance Minister, however, chose to extend the provision in its current form and not include other entities for the next three years. Whether this move will encourage direct participation at the cost of investing in funds is something that market participants will be closely watching.

Commenting on the fall in the stock market, Mr Motilal Oswal, Chairman and Managing Director, Motilal Oswal Securities Ltd, said the stock market was disappointed because the Finance Minister did not touch any direct and indirect tax proposals, which were being expected. "However in the longer term we are bullish due to very strong corporate performance and also endorsement by the Minister of many macroeconomic measures like 7.5-8 per cent GDP growth target, curtailing the fiscal deficit to 4.8 per cent etc", he said.