Don't panic if markets fall after the Budget

Use the opportunity to increase equity exposure because these are short-term blips

On Tuesday, the markets saw a steep fall after announcement of the Railway Budget. With the hype built around the Union Budget, one shouldn’t be surprised if the markets fall on Thursday, too. But instead of panicking or rushing to sell, retail investors should use the opportunity to enter the market or increase exposure.

Rahul Rege, business head (retail), Emkay Global Financial Services, says if the market falls after the announcement of the Budget, retail investors should increase exposure to equities. “Investors should look at specific stocks instead of sectors, as they are getting stocks at 2008 valuations. Everyone is waiting for a correction,” he says.

After the Budget is announced, the fall or gain will not be very sharp, says Aviral Gupta, founder and fund manager, Mynte Advisors. “The India VIX (Volatility Index) is not reflecting the importance of the Budget. It was higher during the elections. Since the interest from foreign institutional investors is very high, a downside will not last more than a day or two,” he says. “As with the Railway Budget, the Union Budget, too, will focus on a restructuring of the whole system and making it more efficient. So, it is a good idea to add cyclical stocks to your portfolio because in case of restructuring, these will gain.”

Single-day movements could be erratic because investors might take speculative positions and sell. But this should not impact the long-term decision of retail investors, says Umang Papneja, chief investment officer, IIFL Private Wealth Management. “A fall in markets after the Budget, if any, will be temporary and retail investors should not panic. It is too early to make a ‘sell’ call, as it is only the beginning of an economic recovery. Short-term movements could be erratic. But if you are overweight in sectors that will benefit from a recovering economy, such as banking, cement and infrastructure, you need not worry. Even mid-caps are a good buy, as these will do better in a rising market compared to large-caps. And, if you haven’t entered the market yet, a fall in the market is a good time to enter.”

Any downside in the market will not be much, says Feroze Azeez, director and head (investment products), Anand Rathi Wealth Management. “The direction of the Budget has already been established by the action taken by the government so far. The government is focused on growth, as is evident from the decision to raise railway fares and oil prices. That is why markets have run up prior to the Budget. What the Budget will clarify is the pace of action. If the pace is not in line with market expectations, the market will fall,” he says.

Azeez recommends returning to defensive stocks for two-three years, as these are available at a good valuation. “Defensive have been beaten down and in a rising market, these will do well. So, retail investors can stock on defensive stocks,” he says.