Should you worry about the budget? - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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26 FEBRUARY 2011

The annual budget of the government for the fiscal year starting April 1, 2011 is due to be announced on Monday, February 28th.

The budget is basically a statement of accounts for where the government will spend for the 12 months starting April 1st and where it will get the money from (taxes and borrowings). As in every budget, there will be some sectors that will be hurt by higher taxes and some that will be rewarded by lower taxes and some incentives. There will be something good for the poor or the rich - and something not so good for the poor or the rich.

Even though the budgets are an annual exercise - which can be reversed next year or in later years - the print media and the TV channels (and Equitymaster and me!) tend to spend a fair amount of time on the budget and its impact.

------------------------------ Sensex Could Plunge To 16,000 ------------------------------

No, that's not us making a prediction. This is a BIG investment bank... people who you should closely follow and listen to. The so-called "experts".

Why? Because every time they make such calls, it's usually a great time to buy stocks. But not just any stocks... only blue chip stocks that are available for dirt cheap.

And to know exactly how you go about doing that, just click here...

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But, as Chart 1 shows, the Indian economy has gone beyond budgets.
And has grown beyond budgets.

There have been bad budgets, good budgets, and useless budgets over the past 30 years. The economy, in the long term, has done well and shown an average growth of 6.2% per year every year for the past 30 years. The BSE-30 Index was 100 in 1979-1980 and is now hovering between 17,500 and 18,000. An investment in the Indian stock market index (the BSE-30 Index) would have given you a return of 180x over the past 30 years. Not bad.

Chart 1: GDP Growth rate across 8 governments has been 6.2% p.a. over the past 30 years
9 governments of which 6 were coalition government | Source: Quantum Advisors Pvt Ltd

Not that the ride has been smooth. For those who began investing in 2005, there have been a few really sharp roller-coaster rides. The markets surged in 2006 and 2007, the collapsed in 2008 - only to head right back up again in 2009 and most of 2010. This year has not been good for the markets, so far!

Investors should keep in mind that the stock markets are the end result of facts, expectations and emotions. Of money inflows as speculators rush to buy in and cash outflows as speculators rush to sell out.

Graph 1: Fasten seatbelt for an exciting rides: BSE 30 Index, Jan 1, 2005 to Jan 31, 2011

So what should investors do now? Should they sell if the budget is bad? Should they buy? Should they wait for the experts to give their views and opinions and then follow their advice?

Well, read what we have to say in the Quantum Theory of Investment, a free book that you can download from the website www.QuantumMF.com

We have given you our views - and invited others we respect to share their insights and experiences.

Yes, budgets matter - for a few weeks.
And governments matter - for the term that they are in power.
But what matters more, in my opinion, are the simple things we talk about in the Quantum Theory of Investment. And, if you are a long term investor, I hope you enjoy the simple truths we talk about.


Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
Quantum Long Term Equity Fund Quantum Gold Fund
(NSE symbol: QGOLDHALF)
Quantum Liquid Fund
Why you
should own
it:
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 20% Keep aside money to meet your expenses for 6 months to 2 years

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"


Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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2 Responses to "Should you worry about the budget?"

SS Varadan

Mar 1, 2011

I think, Indian FM should make the Budget Exercise as routine!
The Taxes & duties should normally be stable for 3-5 years. (Corporate can plan better).
Minor modifications can be allowed as when required.
Plan Vs. Actual need to be explained by the FM, to this Country, every year!!

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swaminathan

Feb 27, 2011

ur articles are very interesting. I wanted to invest in ur quantum mf schemes but not available online with icici direct.Could u pl tell me how can i invest in ur mf

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Equitymaster requests your view! Post a comment on "Should you worry about the budget?". Click here!