The media last week was filled with post budget commentary. Most articles outlining the positives and negatives of the budget, some on sectors that are likely to benefit and others on the functional impact based on target segments. More important question though is what are the implications of this budget for your current and future investments?
The fact that the markets have run up significantly after the Budget clearly indicates that the Budget was very well received, but let’s delve a little deeper in to why this budget really got the spirits high.
- It is a growth-oriented budget, the budget clearly signaled the governments intent to focus on the growth of the economy even if that meant an increase in the fiscal deficit numbers, the current fiscal at 9.5% of GDP. As you may be aware, the economy was just limping on even before the Pandemic, with the economy now normalising, the government spending is likely to have a bigger impact in the long term.
- Also, the focus is more on capital expenditure by targeting sectors such as infrastructure which is more productive i.e. quality of expenditure is good. The economists are of the view that the higher-than-expected capex spending could boost GDP growth by 0.7-1.3% over the medium term.
- The budget is also more believable this time around, as the estimates on the GDP growth and tax receipts are conservative i.e., the probability of surprise on the upside is higher.
The implications of the above are that the Indian economy is now at an inflection point and the growth trajectory is likely to mimic that of China in 1980’s.
So how should one investment in the present times? Although, in the long term, the equity markets correlate with the earnings growth, that alone cannot be a metric to guide your investment decision as markets discount the future. You have to look at the overall market valuations at the time of your investments but not attempt to time the markets, a speculative activity that is difficult to get right consistently and something that even top economists and Nobel Laureates have failed miserably at.
The best time to invest is always now, the quantum of investment however, depends on your investible surplus, your investment time horizon and the current market valuations. You have to be mindful of your asset allocation at the time of investment because, the right asset allocation will help you extract the optimal returns without dealing with the heartache that comes during extreme market cycles, the one we saw in the year 2020.
In conclusion, the next decade looks promising with the start of a positive economic cycle. All that investors have to do now is to make sure that they invest as much as they can for as long as they can. No doubt, you will see cycle extremes a couple of times during your investment journey, the strategy is to navigate them well via strategic asset rebalancing, investing in a staggered manner and staying the course to build some serious wealth in this decade!