The stock market made an explosive move post budget, giving a clear thumbs up to the annual Budget 2017 presented by Finance Minister on Wednesday. Clearly, the nervousness exhibited by investors pre budget has changed to confidence about the economic future. The finance minister has made all the right moves in all right areas. Maintaining a very prudent norm of 3.2 per cent of budget deficit, especially when people were expecting not so prudent fiscal policy in view of demonetization issues, was an excellent stand. Further abolishing Foreign Investment Promotion Board, sounded great to potential foreign portfolio investors and therefore markets warmed to the budget.
Since all stimulants to economy are finally getting into place as shown by the all-rounded budget proposals, clearly time has to come to shift investments to equity markets as that's where you will see the returns in 2017. And thanks to the finance minister, everyone has bit extra surplus to invest more, due to lowering of direct tax. Also, the incentives to invest equity has gone up more as clearly lower interest rates are here to stay as fiscal discipline shown by the government, will only lead to lowering of rates in due course. CPI dropping to its lowest level in last quarter, definitely means that the RBI will definitely cut rates in future and fixed deposit rates are bound to go down as a result. So, definitely its time to invest in the stock markets.
The future of the Indian economy looks good too, with macro factors clearly in favour of continuing the bullish run . In the second half of 2017, Indian economy is expected to rebound back to good growth rates, largely because of GST kicking off, along with lower interest regime. GST should make the unorganised sector become more tax compliant and thereby drive additional growth for the organised corporate sector. RBI may further cut down the interest rates, as inflation is likely to remain under control. So, these should propel the corporate earnings growth rate driving market upwards. Both Sensex and Nifty look set to outperform in 2017 after a run of poor performance in 2015 and 2016. Specific sectors which are likely outperform in 2017, are financials, auto, metals and industrials. Sectors like IT and Pharma which have global exposure, probably have the TRUMP overhang to be dealt it but they should also come out of it, in due course.
For those who are faint-hearted, direct equity exposure is ruled out and therefore, for them, clearly the top ranking equity mutual funds are the space to be. Not investing out now, could mean loss of a good opportunity for building your long term portfolio.
And the government emphasis to go digital is clearly seen in the way budget makes digital cheaper and better. Restricted cash withdrawals and costlier offline railway tickets, clearly shows that its time to go digital in investment way as well.
(The author is co-founder, Gumption Labs)