If you are an investor in India there are many people around you asking, ‘How prepared are you for the budget?’ If you are a ‘Real Long Time Investor’, you should listen to Ayn Rand – and just ‘shrug’. I agree it is very difficult to remain indifferent. Your morning newspaper, television channels and websites are all in a hurry to tell you the following: What is likely to happen, what the industry wants, what the housewife wants, why gas prices will go up, cigarettes will now be doomed and so on.
The budget is an activity which has no meaning at all for a retail investor. The budget is a document which says how much the government is expected to earn, borrow, lend, spend, save, and how the economy is likely to take shape. It is just a hope document, which may not mean anything to you. And at the end of the year, you have a finance minister telling you why nothing in it happened. Or did not happen as he said it would.
Now coming to 2014 India. If you were an equity investor, you were in the Mecca of taxation. No capital gains tax, no dividend tax, no wealth tax — what more could you want? A well-developed market, a fantastic back end, guaranteed trades. You can sell shares worth a few million dollars and get the money credited into your account in 48 hours. No hassles, fully safe, no counter party risk, completely tax-free. You can only pray that the finance minister does not do anything which upsets this equation.
Now the stupidest thing that an investor can do is to react to the budget. Let us assume one provision said (it did, in 2014), ‘the government will encourage drip irrigation all over the country.’ You rush to buy Jain Irrigation, which has already shot up 10 per cent. You feel happy with that till you see the prices of Jain Irrigation drop over the next three days. After one full year, the share may have done nothing, and you would have been much better off with your mutual fund, where the fund manager may have taken a calmer call!
Why? Simply because the people who knew this would happen had already ‘bought on rumours and sold on news.’ So reacting to the budget does not help the retail investor much. Might as well wait and take a calmer decision.
You think the investors will have learnt their lessons in 2015? No. They will continue to be excited by the budget. Arun Jaitley will say, “We understand the need for infrastructure, so the retail investor will go and invest in either infrastructure funds or a few infrastructure shares, currently quoting below Rs. 10.
investor, you know this is a gold-hungry country and given its recent, good as gold track record, the gold rush will continue. There is wealth tax on gold, short term capital gains for gold unless it is held for three years. After three years, it still attracts long term capital gains. You will still buy gold because your wife said so…or for whatever reasons. So how does the national budget help you? In no way.
If you are a bank depositor, chances are, bank transactions will be left untouched — but even if the FM were to tinker with it, it could only be to improve the post-tax return for the investor. Really nothing to look forward to as an investor/depositor.
Real estate – another asset class which you buy, hold or sell, depending on your own requirement or friend’s advice. These are really long term decisions and one or two budgets will not really make/mar your decisions.
So as an investor if you sleep through the budget and wake up two days late, do you think it will matter? The answer is no.
Instead of seeing what Arun Jaitley is doing with the country’s money (rather what he is promising) you should concentrate on your own budget. Your asset allocation, your income and expenditure, your balance sheet, your goals.
That will give you a far superior RoT — Return on Time spent.
The writer is CEO, Subramoney.com
P V Subramanyam