Introduction of LTCG (long term capital gain) tax on equity holding may create a sense of panic for many investors, who already have long term holdings in equity. Even though the stock price on 31st January 2018 will be considered as benchmark price; people will rush to book tax free profit before 31st March.
In fact, Nifty and Sensex each had a fall of 2.3% each due to profit booking. Sensex fell 840 points and ended the day at 35066. Nifty fell 256 points and ended the day on 10760. In anticipation for a good budget equity markets rallied to 11000+ levels on Nifty and 36,000+ levels on Sensex.
Today's correction in share market was long overdue. There had been a buoyancy in equity secondry market due to enhanced support from domestic institutional investors. DIIs have outperformed Foreign Institutional Investors (FIIs) in past year. Another shocking revelation by Finance Minister was that the equity market performance lead companies to park their surpluses in form of shares and mutual funds.
Markets are highly priced at this point of time. In next two months investor will sell to minimize future tax liabilities. This bring the market down at least by 10% from current levels. 10% is my conservative estimation. For a value investor like corrections in equity market is a reason to cheer. People feel elated whenever e-commerce companies offer crazy discounts. In the same way lower levels of NIFTY and SENSEX will offer crazy discounts on your favourite shared.
As a value investor, we should have an accumulate list. Whenever there are dips in equity market you should have enough cash surplus to go shopping into your demat account. Warren Buffet says hia favourite holding time for his favourite stocks is 'forever'. Next two months will give you opportunity to buy stocks from your accumulate list. Discount brokers like Zerodha do not charge brokerage on share purchase. They only charge for intra day and future and options trading which is a nominal Rs. 20 per trade. Value investing through discount brokerage like Zerodha is brokerage free.
As a value investor, we should not be crazy to accumulate products and services which everyone desires or can't live without. Rather we should be crazy to accumulate stocks of those companies which sell such products and services. Personally, if I will get access to invest directly in USA stock exchanges, my first pick will be Apple Inc followed by Google and Facebook.
Dividends will be tax free as they are now upto 10 lakh rupees. If your portfolio generates 2% of average dividend yield you would need a portfolio of valuation above 5 Crores rupees to get a taxable dividend.
Capital gains from equity upto 1 lakh rupees in a financial year will be tax free. Hence, smaller value investors will still have tax exempt LTCG.
Hence, we can summarize this post to conclude that LTCG tax on equity should not derail your plans to build wealth through equity. You can value invest with serenity, courage and wisdom.
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