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.
