Skip to main content

Investment Strategy after the Budget 2011

A touch of gold, and some good infra and agri stocks may do a world of good to your portfolio


   For all its sheer unpredictability, the stock market can be highly predictable. And the budget is one such occasion when the market behaved in an expected manner. In the run-up to the budget, investors (or rather speculators) start building up positions in stocks which they think will benefit from some sundry announcements. However, this year was an exception. Thanks to disparate scams that were hogging the headlines in the local media and the rise in price of crude on account of the unrest in the Arab world, the pre-budget rally was a no-show this time. Going into the budget session this year, the markets were extremely light and there were virtually no expectations from the budget given the fact that there were too many other factors floating in the market. However, after the budget the story was different: the market has been rallying since last Monday. Budget 2011-12 is more of a balanced budget contrary to expectations of a populist one.

MARKET'S REACTION TO THE BUDGET

One of the major worries with foreign investors is on account of higher fiscal deficit. The figures released by the finance minister Pranab Mukherjee have relieved many investors in this regard. The budget claimed that fiscal deficit was down to 5.1% of the GDP against the targeted 5.5% and would further decline to about 4.6% against the 4.8% mapped out earlier. Of course, part of the reason for the lower fiscal deficit is on account of the 3G spectrum announcement of around . 65,000 crore, and the successful disinvestment programme. However, whether the feat can be repeated in 2011-2012 remains to be seen. Moreover, not many are optimistic about PSU disinvestment due to lacklustre stock markets. Morgan Stanley says in a research report: "We believe the headline central government fiscal deficit for FY12 will be 5.2-5.4% of GDP, compared with the Budget estimate of 4.6%".


Though it looks ambitious, what investors really would be looking at is a fall in fiscal deficit year-on-year, which is possible. Many in the market feel that these figures are optimistic and feel that there is no certainty that it will happen. The fact is that things are moving in the positive direction.


Another important announcement in the budget was the setting up of a committee under Unique Identification Authority of India (UIDAI) chief Nandan Nilekani to suggest measures to implement the proposed shift from physical subsidies to cash transfers. UIDAI has the ambitious task of opening 10 lakh UID accounts every month, which will make it possible by 2012 to transfer cash directly. This is expected to reduce leakages considerably and help reduce fiscal deficit. A road map has been laid for the implementation of GST and DTC, which is a big positive. Initiatives have been taken on the food front too. The finance minister has realised that food inflation is more on account of supply-side constraints and, hence, the focus is now on improving logistics and cold chains across the country.

GOING FORWARD

The Bombay Stock Exchange (BSE) Sensitive Index (Sensex) has taken a positive cue from the budget, and has been on an upswing since February 28. Since the announcement of the budget, the Sensex has gained 786 points or 4.44%. Clearly this is not a time to sell. With the markets trading at 14 times forward earnings, investors should stay put. However, as far as fresh equity investments are concerned, he advises investors to buy slowly. There are a lot of uncertainties surrounding the market in the near term. Also, he advises investors to allocate 10% of their portfolio to gold. And, on the debt side, retail investors could also look at fixed maturity plans as the returns from such products could be in double digits.


As of now, oil is a major concern for investors. With the Arab crisis, having spread to Libya, the situation is quite fluid and no one knows when and how it could end. According to a Citigroup report, a $1-per-barrel rise in global oil prices will widen India's trade deficit by $700 million, or 0.04% of gross domestic product (GDP). With state elections around the corner, the government is unable to pass on this rise to consumers. According to a research note by Edelweiss Capital, diesel underrecoveries are at . 10.3 a litre. While LPG under-recoveries averaged 286/cylinder, kerosene under-recoveries were at 10.7 a litre. In addition, to this inflation shows no signs of cooling.


This has led to a rise in lending rates and is threatening to curtail growth. It is impossible for retail investors to time the markets, and definitely you should invest about 60% of your money now, while the rest could flow in on declines.


FIIs have shied away on account of these factors and with chances of recovery in Europe and the US, they would prefer parking their money there. On the domestic front, too, issues like governance deficit and corruption seem to worry investors. However, the economy could still maintain an 8% growth rate.


She advises investment in infrastructure and agriculture as they could be major beneficiaries in the coming years. "Investors can invest from a three-year perspective, and use every dip in the market as an opportunity to buy.


Stick to their asset allocation at all given points of time. He advises every investor to build a financial plan for himself. This could be done by taking into account various factors such as age, number of dependents, risk profile, existing financial investments and goals in mind. Once that is done, an investor could arrive at an asset allocation for himself. Asset allocation, means allocating your money across various asset classes such as equities, debt, real estate and gold. So, typically, a moderate risk profile investor could have a 60% exposure to equities, 30% to debt and 10% to gold. Investors can build their equity portfolio using SIPs over a long period of time.

 

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now