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Finance Minister Arun Jaitley announced the Union Budget for FY 2016-17 yesterday. The budget is basically a statement of accounts covering the government's spend for the 12 months starting April 1st and sources for the same (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 positive for the poor or the rich - and something not so good.
However, going by the trends, what one can surely count on is market volatility. This is common to every budget announcement.
However, for investors it all boils down to one important question. Should there be a marked change in the way an investor should go about investing depending on the budget?
Well, we don't really think so. You see, making macroeconomic projections and getting the big picture right is one thing. However, to really translate them into profitable stock picking decisions is a different ball game altogether. One shall note that macroeconomic events are barely a blip in the long term intrinsic value of stocks. As Buffett has said, "The cemetery for seers has a huge section set aside for macro forecasters. We have in fact made few macro forecasts at Berkshire, and we have seldom seen others make them with sustained success."
But this is not understood by those who often over-react to such events. Even though the budgets are an annual exercise - which can be reversed next year or in later years - such people tend to spend a fair amount of time on the budget and its impact. And they also base their investment decisions on the same. This was clearly depicted in the market movements this month. The Sensex witnessed steepest pre-budget correction this Budget month in 7 years.
We believe it is fear at this time that can turn risk-reward equation in our favour, making stocks an attractive long term proposition. As a matter of fact, the way our investment process across most of our services works is that we would be happy if the markets react negatively to the budget. For then our chances of finding bargains get a boost given how expensive most of the stocks have become. No wonder then, that the Stock Select team has revealed to the subscribers not one, not two but four blue chip stocks that look attractive amidst this market correction. To know more about these stocks, click here...
As far as the research team at Equitymaster is concerned, no single economic event, not even a path breaking Union Budget can be the reason for making dramatic changes to our investing style. We have never believed in the concept of 'budget investing' and so we continue to re-iterate our stance of investing in good quality companies that have solid businesses and are available at reasonable valuations that can add to the long term wealth of shareholders.
We have shared key takeaways from the budget here. It covers the key announcements made by Finance Minister Arun Jaitley and its impact on the Indian economy. Be sure you don't miss it! Click here to sign up for your free subscription...
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