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Budget or Not - It is the Valuation That Counts
Feb 2, 2017


The Union Budget for 2017-18 was presented by finance minister, Mr Arun Jaitley yesterday. The markets seem to give a thumbs up to the budget, the Sensex closed up 486 points for the day. Does the budget play a crucial role for a serious long term investor? What role if any do the valuations play in prospective returns. We looked at the price to earnings ratio of the Sensex on the budget day as a proxy for valuations and noted the following 3 year compounded annual return going forward.

We found that the market returns are agnostic to the budget in the long run. What mattered more was the valuations at that point in time. Cheap valuations are a big driver of future returns.

This is just a reinforcement of what we reiterated in our wrap up yesterday:

    Be it the Union Budget, GST or a great monsoon, you always got to ask the all-important question: Everything said and done, am I paying too much for the stock in relation to its intrinsic value?

    For even though the budget may be path breaking and the economy may have some great years ahead of it, when you pay too much, even a good stock can quickly turn into a bad investment.

Data Source: Ace equity, Equitymaster

This Chart Of The Day was published in The 5 Minute WrapUp - What to Do After Budget 2017-18

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