The Hindu Business Line : Now, time to rework strategy following Budget pronouncements

Now that the Budget is firmly behind you, this may be the time to take a fresh look at your portfolio and assess the funds you have in it. As always, such an exercise needs to have a clear underpinning, summed up by that classical poser: Is there scope for re-balancing the portfolio in view of what has been stated in the Budget?

And if your answer is Yes, go right ahead and shed whatever that must be discarded and add whatever that is needed to supplement your holdings. The thing to remember here is that the entire process of addition and deletion comes at a price - transaction costs that you, the investor, will have to bear. So make sure that the probable gains cover these costs and leave you with a definite surplus.

The other factors to consider when applying a re-balancing tactic include elements like time spent and redemption fees. Each factor will potentially diminish your returns. The character and extent of transaction costs will have an impact on the choice of re-balancing tactics that you may contemplate.

Incidentally, as experts have often pointed out, there is no singularly optimal re-balancing tactic - just as there is no singularly optimal asset allocation strategy. An investor may choose a certain re-balancing tactic, depending on his risk tolerance. Each investor will have a unique asset allocation and a unique target allocation. Re-balancing approaches, therefore, will differ from one investor to another.

Let's go back to where we started from, the Budget. We tried to sift through what has been stated by the fund industry - and, believe me, there have been quite a few statements - immediately after the Budget.

A few of these do stand out. However, a number of opinions converge to suggest that the government was led by a primary theme: control of inflation.

Fund houses have pointed out that the government has once again underlined the need to spend on agriculture and infrastructure, two broad areas that are yet to catch up with services and manufacturing. Also, a few fundmen have generally branded the Finance Minister's annual exercise a "non-event," simply a means to ensure continuity in policy initiatives. (Incidentally, the Budget has referred to dedicated infrastructure funds, and the asset management industry is expected to seek guidelines on this matter).

A leading fund manager - we are not mentioning the name here, but he is pretty well-known - has actually said that the `positives' outlined in the Budget can be mostly expressed in terms of `no negatives'. You can chew on that when you have time to spare.

As for specifics, here's a quick one gleaned from the slew of opinions that have come through. T he savings rate now stands at 32.4 per cent, which is about 3 per cent more than that recorded in the previous year (and on a bigger GDP base). We are sure fund houses will want to use this to their advantage.

On another front, it is believed that the higher dividend distribution tax on dividends paid by money market and liquid funds will have `a near term impact' on such funds. Will this render these products somewhat unviable, especially when compared to bank deposits (which now carry higher rates of interest)? Most fundmen feel that the two - cash funds and deposits - have different roles to play. Each, therefore, will find its place in the sun.

Feedback may be sent to nilanjan@thehindu.co.in

More Stories on : Mutual Funds | Budget | Mutual Confidence

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Brewing westerly threatens wheat crop

Consumer group files PIL against Hutchison Essar

Corporates catch World Cup fever

Poverty level declining, says NSSO survey

Now, time to rework strategy following Budget pronouncements

ONGC wants to pitch again for KG basin blocks

Shipping firms ride high on buoyant dry bulk rates

Hyundai plans to set up LCV plant at Pune

Tata vehicles to roll out with Chinese radial tyres

India rated high in IP protection

Outlook bright for next season coffee crop

No dramatic turnaround likely