A friend called me last week asking, “ Will this just budget have some tax reductions?, I am paying too much nowadays”. Well, that’s the story of one big hope which all salaried folks carry during the budget.
But does the budget rise to our expectations? So instead of speculating let’s see what happened in the previous five-year budget ( five years because it will cover big elections as well).
You can see that some meaningful tax reduction happened twice, once in 2017 and then in 2020, that too only in the lower slab. Also, the introduction of a new tax regime has favored only the people earning less than 15 lakh salary, above which it actually increases the tax outgo, for detail see this illustration provided by the Hindu.
Now coming to the present scenario, the government has all the incentives to effect a change in slab/tax rate, if they want. But I have a feeling that it will be more towards people in lower tax slabs. Also, favorable policies for small and medium scale industries could be a booster to uplift the covid dampened spirit.
But what about the implications on the stock market? Markets do react to anything it is not expecting, and there can be some short-term volatility like 2018 when the market was not expecting long-term capital tax gain, and vice versa. But for long-term investors, these events are one of many events happening all over the year.
Until the government changes its development stance or brings some unfavorable business laws, it will be more of a this too shall pass event.
But does the budget carry anything for investors like us?
Any Tiny Triggers?
The budget does carry many tiny events that have the potential to create new industries or change existing businesses, but budgets are mostly proposal, which takes time to take effect, in many scenarios it can take up to 2 to 5 years or a decade as well, so you should not really jump or crawl on budget speech for your long term bets.
Once the information is public, we will have enough time to find those triggers, if any, and take bets on them.
Some of my past experience of finding tiny triggers has really helped to find multi-baggers in the stock market. It’s secondary that I could not fully utilize those opportunities but nevertheless, it has made the budget bit interesting.
Few Examples :
In budget 2014, do you remember when gov said, they have a plan to electrify every village in India in the next 5 years?
For me, that was a trigger to find small-cap companies in wire manufacturing and it gave me my first multi-bagger and some tough lessons on holding your bets. More on this sometime else.
In budget 2017, Housing for all was introduced.
For me, the trigger helped me find my third multi-bagger, a small housing finance company, but alas, it got busted in some scam, later on, another lesson learned.
Similarly, there are many other triggers, some of which worked and some of which flopped but they had some great lessons with them.
Now using those lessons, we will try to find new triggers, new business, and hopefully some new lessons! fair enough?
What next?
I am reading your concerns on the recent meltdown in the market and a few had queries on how to deal with it?
Well, as I mentioned in the last post, you really have to apply those points, it’s a pure coincidence that the meltdown started right after that post, but my sincere advice to all investors is to put their portfolio in order.
The meltdown may or may not last long, we have no control over it. But a clean portfolio always pays up in the longer run, and we have all the control over it. Time to exercise that control.
Let’s see if we get anything meaningful out of budget, please share your thoughts on post-budget ideas, if any.