Indian markets have corrected sharply post budget. This correction, in our view, provides a fantastic opportunity for the long term investor to increase allocation to equities as an asset class. If one re-computes the index after taking out top 10 stocks, the markets are down by about 10% on an year to year basis. The situation is even worse if you look at mid and small caps. The 2019 budget is negative for ultra-rich in terms of taxation. However, the Finance Minister has given a good provision to increase liquidity in the Indian banking system. Increase in liquidity will lead to a reduction in interest rates. This will in turn increase the margins of leveraged mid and small cap companies.
As per FinAtoZ investment model, this is a very good time to increase allocation to mid and small caps for a 3+ year investment horizon. It is also a very good time to increase allocation to PMS for a similar time horizon.Continue reading »