Sensex surged by more than 6.2% since the start of this year and crossed the range of 36,000, the highest in the history. Given the impact of the budget on the stock markets, it is that time of the year when every citizen of the country has fastened their seat belts for the much-awaited Union Budget which will be presented on February 1, 2018. This will be the last full budget before the 2019 Lok Sabha Elections and if we believe the grapevine buzzing around, it will be Finance Minister Arun Jaitley’s most ‘populist’ one till now.
It is noteworthy to point over here that this budget session follows the two revolutionary reforms initiated by the BJP-led government in the previous year i.e. Demonetisation and GST.
This year, we are expecting positive measures for various sectors including Health, Infrastructure, Mining and Manufacturing, etc., here we list few expectations from this year’s budget which are expected to give tremendous relief to the retail investors in India.
- Hike in the personal income tax exemption: As per the current tax brackets, income up to INR 2.5 lacs is completely exempted. There is a strong anticipation in the market that the Finance Minister can lower taxes by hiking this ceiling from INR 2.5 lacs to anywhere in the range of INR 3 to 5 lacs. If you consider the tax collections for the year 2015-2016, out of the total individuals who filed returns, only 20.5% declared income above INR 5 lacs. If this turns into reality, it will increase the disposable income in the hands of the consumers which will boost consumption and investments.
- Governments spending towards infrastructure sector: Investments towards sectors like infrastructure and construction have multiplier effects on our economy. Initiatives towards revival of stalled projects across roads, highways, ports, airports, power, railways, waterways and mining will increase the job opportunities which in turn will aid the income levels and consumption in the economy, thus stimulating the growth of the economy.
- Tax relief to equity investors: ELSS are the most sought after investments as they are tax friendly to the tune of INR 1.5 lacs under Section 80C, provided there is a lock-in period of 3 years. Since there are many categories such as provident funds, tuition fees, fixed deposits, etc., the deduction of INR 1.5 lacs is not sufficient for many retail investors. Many expect that this range would climb to INR 2 lacs, thus navigating more savings towards the stock markets.
- Measures towards fiscal consolidation: Given the overvalued markets, buoyed sentiments and acknowledgement of Modi’s reforms across the globe, the stock markets are resilient when it comes to the moderate fiscal deficit for the short-term. Given the current fiscal and trade deficit levels, it is implied that measures for curbing the same would be one of the highlights of the budget. However, it will be interesting to see how our Finance Minister is able to balance the market expectations and fiscal deficit.
- Fast-pace the growth of the rural sector: In this budget, we can watch out for measures which will remove the bottlenecks responsible for the slowdown of the rural economy. Since the rural population constitutes 70% of the Indian population (Source: Census 2011), it will be worth waiting to watch governments expenditure allocation towards the rural hinterland as well as the focus towards jobs creation and boosting the growth rate of purchasing power of the rural population.
- Stimulus to agricultural sector: Farm-focussed measures towards improving irrigation, agricultural credit, crop insurance would be one of the primary consideration for the government.
- Along with the above-mentioned reforms, we expect the government to give a further boost to the manufacturing sector.
With this, we jump to the most fundamental question:
With the bull-run, is it the right time to deploy additional funds in the stock markets?
If yes, how retail investors can leverage on this ‘populist’ budget and myriad of investor-friendly measures anticipated from the budget?
Let’s start with the fact that there is no time to enter the markets, albeit you buy growth opportunities with a vision of 2-3 years or longer. Here, we list down few reasons behind why we stick our neck out to investing now and not wait for the budget results to unfold.
- Timing the market will always remain a BIG No: Irrespective of repeated educational stories on the ill-effects of timing the market, many investors prefer to ‘wait and watch’ or try to ‘time the market.’ Ahead of the Union Budget, we take this opportunity to accentuate the importance of ‘time in the market’ approach while investing in the equity markets.
- Stock-specific investment methodology: We like to stick to our investment philosophy of investing in quality mid-cap stocks. After the prolonged run, markets witnessed mild corrections in the mid-cap stocks, thus opening new avenues of investments in high-growth potential stocks.
- Buying quality businesses: Once my mentor told me, invest in stocks like you purchase groceries and not the way you buy branded cologne. The message hidden behind this message is that we do not compromise on the quality of the grocery which goes into the cooking of our day-to-day meals. The reason: We all are little finicky about our health. The same connotes to buying stocks as there is not only a monetary investment involved, but also intangible investments in the form of time, financial hopes and efforts.