Smart investment to make the most out of Budget 2019?

Make it a point that after each budget you do a post-budget review of your complete investments including equities, bonds and MFs.

Jun 28, 2019 08:06 IST India Infoline News Service

Budget concept
George Bernard Shaw eloquently said that the Budget was an attempt to equate earning capacity with your yearning capacity. Of course, Shaw was referring to the household budget but the logic applies equally to the Union Budget too. As consumers and investors we all yearn for the maximum and try to stretch resources to that limit. In a way, that is what investing is all about. You make your money work harder and help small savings to compound into big wealth eventually. As India prepares to digest the nuances of the first budget of Modi 2.0, how can investors make the most out of the budget?

Don’t obsess with pre-budget and post-budget rallies
Switch on any television channel these days and the only discussion you get to hear is about a pre-budget rally versus a post-budget rally. Frankly, no one can precisely predict whether we will have a pre-budget rally or a post budget rally. But one thing is clear that in the last 30 years, whenever there has been a stable government, stock markets have given robust returns in the next 6 months to 1 year after the budget presentation. This means two things for your investments. Firstly, if you have already made an equity allocation in your financial plan, just continue with it and don’t try to second guess the market. Secondly, adopt a systematic or phased approach. For all you know, you could get a windfall due to sudden volatility and end up reducing your cost. Juts stay focused on your goals.

Buy the hope, sell the hype and avoid the bust
This is an interesting takeaway for your portfolio ahead of Union Budget 2.0. In the previous point, we spoke about your overall financial plan. Here we focus on your equity portfolio. Firstly, buy the hope and here we refer to genuine hope. As a smart investor you need to ask what could be the overarching themes of the budget. Offhand, one can rattle off themes like consumption, rural and PSU banking as clear themes. That is where your buying should be concentrated. Of course, look for pockets of value. Even a good stock can turn out bad if purchased at an awful price.

Secondly, sell into stocks that have been backed by lot hype but have hardly delivered anything of substance. It is best to wait in the sidelines and take a view only after you see something tangible in the budget. Fertilizer has been one such story ahead of each budget. Lastly, avoid the bust. When a stock corrects from Rs100 to Rs10 and then bounces by 100%, don’t get excited. It is still 80% below the pre-bust price. This applies to stocks like Jet Airways, Dewan Housing, PC Jewellers and scores of similar stocks. Stay clear of them.

Focus on the factors that you have control over
This is the cardinal rule. We spend too much time guessing whether the budget will hike income tax limits or whether it will increase home loan exemption limits or whether the budget will cut corporate tax rates. Frankly, you don’t have control over any of these. What you have control is what you should focus on. For example, you can diversify your portfolio to reduce your risk. Alternatively, you can opt for Direct Plans to reduce your cost of transacting in mutual funds. Limit your focus to controllable factors.

Do a post budget monitoring of your investments
Make it a point that after each budget you do a post-budget review of your complete investments including equities, bonds and MFs. You need to figure out whether the budget is favourable for long duration bonds or floating rate bonds. You must be clear on whether the focus should be large cap diversified or multi cap. These are kind of small issues that can help you fine tune your investments post the budget announcement.

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