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The Signal: The Week Highlights


the weekly newsletter


1. India’s GDP Goes Grand

Indian economy returned to growth in Q3FY21 with GDP & GVA reporting 0.4% and 1.0% after 2 consecutive quarters of contraction. 6%+ growth in Construction, Financials, Real Estate and Services were key drivers for growth, marking return to pre-pandemic health and strengthening of V-shaped recovery.

GVA growth metrics for FY21 has been revised upwards to (-) 6.5% from (-) 7.2% earlier, courtesy of revival of Transport & Travel segment. Further, govt.’s flagship ‘Atmanirbhar’ policy and broadening PLI scheme will be instrumental in printing GDP growth for the near and short-term, with long-lasting effects on long-term growth.


2. Manufacturing Makes Promising Potential

India Manufacturing PMI recorded 57.5 in February vs 57.7 in January. In October, it recorded the highest figures in 12 years at 58.9. Remaining flat-to-positive, the index remained above its long-run average of 53.6. The PMI reading has maintained growth trajectory for 7 th month in a row. 

As is seen globally, manufacturing PMI continues to out-perform its services counterpart, courtesy of the latter being hit harder by Covid-19. 3-month joint-highest business optimism can translate into healthier economic conditions in times to come. Vaccination drives to play instrumental role in the same.


3. Services Serves Growth On The Menu

India Services PMI increased to 55.3 in February from 52.8 in January, growing at its fastest pace in over a year. Growing for 5 months in a row, survey credited the uptick to improved demand and more favorable market conditions. Sub-sector data highlighted Transport & Storage as the brightest spots recording the strongest increases in new business and output. Information & Communication was the only sub-sector to post contractions in sales and business activity.

he growing services PMI adds to expectations of strengthening of current economic recovery, with other high-frequency indicators such as IIP, auto sales, railway freight, power demand, and exports(declining at weakest rate in last 12 months) also exhibiting similar traits.


4. Drained India Drawn As Investment Destination For To-Be Gain(ed) Investors

Economic Multilateralism and National Capacity Building will help nations recover from covid disruptions. Export and Demography prowess coupled with like-minded policies and practices can make India the hotspot for investments the world-over, thus kick-starting a global recovery from home.

Coming out of this trouble bubble has boosted India’s efforts to become the supreme everything-maker as much as it has set back its abilities to do so. In expedition of New Normal, the country is quick to adapting and improvising on current challenges to make them future opportunities for growth.


5. Subsidy Suite Puts A Spring On Safety

Subsidy bill is likely to be higher for 2021-22 compared to budget estimate (BE) 2020-21, but possibly lower than RE 2020-21. Higher spending on food and fertilizer sees minimal comfort by reduced in low oil prices. Cash transfers also saw robust response from beneficiaries, as can be inferred from data on Aadhaar-enabled Payment System, where the value and volume of transactions have risen steadily this year.

The higher outlay on subsidy must also be seen in the backdrop of the Covid-19 pandemic and lockdown, with the Centre announcing relief measures under the Pradhan Mantri Garib Kalyan Yojana. Real shock is likely to come from low revenue receipts.

The Signal: The Week Highlights


The signal 4


1. Moody’s Assigns India A New Mood

Moody’s revises India’s growth projection to 13.7% for FY22; expects contraction of 7% this fiscal. The revised numbers came on the back of normalization of activity and growing confidence in the market with the rollout of Covid-19 vaccines

The very large rebound incorporates the view that recovery in market activity will continue

In making Co-vid becoming Go-vid, India assigns packages and policies with direct and indirect benefits to drive key economic indicators in the present and near future. Playing to its strengths in demography, ‘local maker – global seller’ approach and looser spending budget will help India contain the contaminator and expedite the adoption of New Normal.


2. PLI Potential Draws From Ocean 11

In 7 years’ time, India can look to augur higher GVA figures, courtesy of business-friendly norms in 11 key identified manufacturing sectors. Industry policy should oomph export growth, import localization, domestic demand, and contract manufacturing to source healthy and wealthy growth. 

Finding new home in India, companies with market-cap bigger than country have situated its producers where its consumers are. The cash-rich entities continue to be cash-hungry, being interest-invoked by India’s make-&-take plans. The Make Local – Sell Global policy is here and alive.


3. FDI Fervor Is Here To Stay

There is a growing interest among overseas investors about the country amid the government’s continuing reform measures to further improve the business climate. Easing compliance will be a priority area to draw fresh overseas investments.

FDI recorded significant jump irrespective of global slowdown. Easing compliance and relaxed norms have attracted investors. The key sectors attracted investors are hardware, telecom, trading, construction, auto, chemical and pharmaceuticals. The trend is expected to continue with more development on ease of doing business.


4. Covid Can Cause Cheers Or Confusion

Vaccine efficacy and vaccination drive will be key in printing market trajectory in immediate times. The current recovery can be attributed to 3 factors– robust flows from foreign portfolio investors (FPI), fundamentals and sentiments. A crack in vaccine strategy can erode any 1/3 influencers.

Inflation and corporate earnings are going to be directly determined by vitality in vaccine distributions. Surge in the virus can push interest rates and valuations as central banks around the globe will look to cut liquidity supply.


5. Govt Divestment Is Nation’s Best Investment

New enterprise policy envisages strategic sectors to have upper-cap of 4 PSUs, with rest being rationalized via mergers, amalgamations and privatization. Emphasizing on domestic production, globally competitive costs and improving R&D, the paradigm framework calls for collaborative efforts with private sector.

Harmony between govt. policies and private practices is a winning combination for India to hold induce competences on the national and international front. In idoling Big Tech / Pharma of the west, India recognizes the accrued intelligence in collective capital and efficiencies of scale.

The Signal: How To Invest When Markets Seem Peaked

The signal

  1. Should I invest today when the market is near its all-time high?
  2. Is it possible to make money in today’s markets?
  3. The markets may go down from here. Is it best to wait out the fall and then invest?

Carrying the same tone, the questions above are a summation of our investor’s most frequently asked worries. The CY2021 YTD run-up lends merit to their pains, as arguments calling for future rise or fall hold equal credibility with investors left to fend off the interim volatilities.

Shown below is the market’s trajectory so far in CY21 YTD:

The signal 1

In be-friending volatility, markets graced all-time highs and settled at levels last seen in 2020. On a daily basis, +ve and -ve equity returns are equally distributed, further adding friction to finding direction in a market where there is none to be found. 

Fortunately, optimism still continues to hold softer edge with renowned investors pegging Nifty at 1,00,000 by 2030. Their observations make entering markets today an easy and lucrative ask, but as we know, it is anything but easy.

In realizing the importance of time in the market vs timing the market, it is imperative to design a structured/systematic entry point into today’s markets. (Systematic…hmm? I think you must have realized where this piece is headed next)

Yes, you guessed right, we are going to be talking about SIPs! 

In 1 sentence, SIP is a science-cum-art method of investing, inculcating discipline while being market level-agnostic. 

Today, while markets are not particularly range-bound, they are still tethering near their all-time highs, or showing euphoria to re-trave those levels. 

So, can SIPs work in today’s markets? Rather, how effective is it as a tool of investing when markets are near their apparent peaks?

The graph below shows how SIPs performed in the past if initiated at peaks vs bottoms: 

The signal 2

As is seen above, SIPs started at year-peaks out-performed investors “timing” the bottom, and marking their entry at said levels. The time-lines shown above were wrought with frenzy, carrying similar uncertainties regarding market’s near-&-long term growth.

In fact, the same was seen in Year 2000, where SIPs starting at peaks delivered lucrative returns to investors. The table below highlights the same:

The signal 3

Another key observation that we can draw from the numbers above is the impact of early investing. Earlier the start, higher is the benefit accrued from the magic of compounding. 

Investor Takeaway:

As is widely acknowledged, no can accurately predict what the next market high or bottom will be. However, empirical testing suggests that SIP can help investors recognize market’s potential via active participation even when participants are left blindfolded by their own admissions. So, don’t worry about where the markets are headed, as long-term investors are the only real winners in the Indian markets. 

We actively recommend you to start your SIP today in funds which suit your risk-return profile and help you maintain your required asset allocation.

As always, we excitedly await to hear from you. 

Till next time, wish you a happy weekend.

The Signal: What Are The Markets ‘Signal’-ing Today?

The Signal: What Are The Markets ‘Signal’-ing Today?


India has kicked off 2021 with elevated enthusiasm as benchmark indices in Nifty and Sensex crossed and re-crossed the 15,000 and 50,000 milestones. Now helmed as the 7th largest stock market worldwide, Indian equities overtook Canada, Germany and Saudi Arabia, recording a total market-cap of $2.7 trillion.

Indian equities have delivered returns, tensions, more returns and more tensions by seeing wild swings on the upside and downside. The present positives are being met with future uncertainties, leading to markets giving mixed signals. 

In an attempt to address these queries, this blog dissects the current market movements into 4 as-simple-as-informative graphs. Highlighting observations, here is what the markets have to ‘Signal’, and how you can make the most of it.


Graph 1 – The Return Reckoner

The signal 1


  1. The viral virus of Covid-19 pushed India and world into socio-economic lockdowns. India’s govt. organized one of the largest relief packages worldwide to anchor India as global growth engine in post-covid world
  2. Markets rallied 80%+ since march lows, with gains being heavily polarized to large-cap stocks. Heavy buying pushed index’s P/E ratio to 36.57 vs long-term avg of ~24. With valuations stretched, and ample flows, investors are looking elsewhere to invest. The backdrop makes mid-&-small cap index companies an exciting opportunity for investors over the next 5 years
  3. The mid-&-small cap segments have given comforted returns over the last 3 years. Govt. MSME plans, supportive valuations (PE contraction of 50% from 2017 peaks), and Multi-cap MF regulation change, are set to bring in flows into these segments.
    In fact, over the last 5 years, mid-&-small caps have greatly out-performed large-caps, as the former have seen 78 & 117 companies report growth vs 68 in the latter


Graph 2 – The Market-Cap Wedge

The signal 2


  1. As observed, post the 2018 market fall, the market rally was particularly narrow and was led majorly by growth stocks. Going forward, the market rally is expected to be broader, courtesy of expansionary policy measures by global central banks, and other covid solution practice
  2. To put it simply, most of the market growth that we see today has come from a handful of stocks in adhering to the “big gets bigger” principle. As we near the exhaustion of the too-big-to-fail syndicates, Indian markets will expectedly fall on the performances of the mid, small and micro institutions. Wider inclusion across market-caps will not only reduce dichotomy between markets and economy fundamentals but also reflect true health & wealth of the sync between them
  3. The fact in growth being pegged to sans-large indices is clearly reflected in figures of the remaining muted market-caps, in their evolution of garnering relevant investor attention


Graph 3 – Championing Cross Market-Cap Portfolio

The signal 3


  1. 2020 markets saw mini bouts for particular asset classes contingent on developments and un-developments. The call for asset allocation stood ground when extremes in allocations became widely visible. Tailored, actively managed, rightly allocated portfolios made the best of markets in up and down trends by systematically managing portfolio exposures
  2. Investors who were diversified across market-caps in their portfolios saw stronger performance vis-à-vis Large-cap MFs and broader markets. In numbers, following were the calendar-year results:
    • Portfolio delivered absolute return of 23.0% 
    • Portfolio delivered alpha of 3.2% vs Large-Cap fund
    • Portfolio delivered alpha of 8.2% vs broader market index


Graph 4 – Sectoral Salutes

The signal 4


  1. The covid phenomenon changed face and value of sectoral outlooks with immediate needs calling for immediate actions. Recognized as the biggest health crisis of the last century, it gave impetus to health & IT sectors, as the health of the 2 factions were key in determining the wealth of the self and surroundings. The imposed lock-downs called for halting activities in manufacturing, productions and service-oriented market sectors. As an example, Auto sales recorded 0 automobiles sold in April 2019, for the 1st time in recorded history in India
  2. Today, those sectors which welcomed India’s affluence are anticipating market corrections, courtesy of bumper run-ups. Sectors like Auto, and Metal (representing Infra) are expected to lead next-gen growth as Govt. looks to publishing India as the world’s new manufacturer. The support is evident in policy announcements of Atmanirbhan Abhiyan, car scrappage policy and infra-oriented FY22 budget

If Indian equities can come out so strong when the world is at its weakest (reeling from biggest healthcare crisis of this century!), then it is only left to imagination to perceive what the markets can achieve in better times. As is said, “A Penny Earned Is A Penny Saved”.

The Signal: The Week Highlights

The-Signal-Week-and-more (1)

The signal


1. India To Register Double-Digit Growth In FY22: S&P

An increase in commodity prices and a revival of domestic demand after the easing of lockdown have brought upside earnings surprises while changing consumer choices such as the preference for personal transport for health-safety reasons, have helped industries such as automobiles.

The Stronger than expected recovery of corporate earnings after the pandemic-related disruption, improved GST receipts, mobility trends showing driving in India has surpassed pre-pandemic levels, and several high-frequency indicators such as purchasing managers’ indices point to positive near-term prospects.


2. Finance Ministry Asks RBI To Ensure A Higher Dividend For Govt In FY22

The finance ministry has asked the Reserve Bank of India (RBI) to make every effort to secure a higher dividend for the government in the financial year 2021-22 (FY22), despite sliding interest rates globally, sources in the know said. It has also sought the RBI’s advice on gold monetization. 

RBI has been the front-runner in helping India restrict economic shocks of Covid-19. RBI has advised against any change in the inflation goalposts. RBI Governor has assured Finance Minister that the Rs 12.05-trillion gross borrowing programme for FY22 will go through smoothly.


3. India’s January Trade Deficit Narrows

India’s trade deficit in goods narrowed to USD 14.54 billion in January as exports grew faster than imports. The exports rose 6.16% in January from a year earlier, while imports were up by 2.03%.

India records positive momentum in exports, reflecting expedited adaption of the world to the New Normal. Reduction of customs duty will promote domestic manufacturing. Easy access to input materials will help India to get onto the global value chain.


4. Government Backs Merger Of Two Tax Slabs In GST

The central government is in favour of merging the goods and services tax (GST) rates of 12% and 18% into a single slab, a top finance ministry official said, acceding to a demand first made by some states and endorsed by the Fifteenth Finance Commission (FFC).

The impact on the consumer will depend on the Council’s decision but reducing the tax rate will make the GST regime simpler for the states and, the government would hope, improve compliance. Sectors such as consumer cyclicals, consumer defensives may benefit from this decision.


5. Industry Cheers PLI For Telecom Sector

The Rs 12,195 crore PLI scheme (operational from FY22) for telecom equipment manufacturing is “a big positive” that will spur local production and generate employment, boding well for the 2nd largest global telecom market. India is eyeing trillion dollar digital economy over the next 2 years.

Telecom operators have new life breadth into them as India drives its “Make Local – Sell Global” philosophy. After extension of loan moratorium for another decade (albeit with some condition), announced last year, this news can rejuvenate call lines in the land of cheapest data rates in the world.

The Signal: Fuel Becomes Pricey – Here’s All You Need To Know

The Signal Feb 2

The post-pandemic India has been characterized by many a positives, but has also brought forth a set of negatives. A key element of the latter which has attracted individual & institutional attention has been the daily-increasing fuel prices. 

As reference, petrol and diesel prices have recorded an upswing since January 6, 2021 after staying unchanged for nearly a month. Primary reason for fuel rates increases can be attributed to global crude oil price rally, and COVID-19 vaccination drive.

In India, fuel is favored across agencies and households for its versatility and immediate utility. The graph below shows how fuel price movement is more impactful across facets of Indian society vs global peers:

The Signal 1

It is no secret that petrol & diesel prices today are trading at their highest levels in 2021. With majority spike seen across metro cities, below are the respective prices across the Big 4 cities in the country:

The Signal 2

Producer supply cuts, revival of manufacturing & production in India, and optimistic business confidence has bolstered positive momentum for oil in country. This is highlighted in the extension oil price rally for 9th straight day, thus accounting for its longest winning streak in 2 years.

Given the above backdrop, it is imperative we understand the art-&-science behind fuel pricing and impact of latest announcements which are keeping fuel prices elevated at current levels.

The table below highlights the key factors which play instrumental role in determining the petrol price and the observations on the same:

The Signal 3

The FY22 budget drew praise for being bold by welcoming more-than-able expenses amidst a global pandemic. A key beneficiary by way of direct and indirect expenditure is set to be agriculture, or in financial terms, how India employs 70% of its 1.2 billion+ population!

In a bid to welcome efficiency in the field (pun intended), the introduction of the AIDC is set to augur revenues for the farmers and its feeders (India). In a bid to reduce burden of implemented cess on consumers, the following excise duty announcements have been parallelly made:

  1. Reduction of basic duty from Rs.2.98 /ltr to Rs.1.4 /ltr for petrol
  2. Reduction of basic duty from Rs.4.83 /ltr to Rs.1.8 /ltr for diesel
  3. Special duty sees reduction by Rs.1 on both petrol & diesel, bringing down revised cost to Rs. 11 & Rs. 8 respectively

As is observed, Current fuel prices and Govt. intentions show discrepancy, as after all efforts, the fuel prices are bearing high buying prices. How has this happened?

The main culprit is the steep hike in taxes (refer to table above) undertaken by govt (central & state) in years last. Further, the crude crash in 2020 May was met by duty hikes to offset revenue shortfalls in direct & indirect tax collections. 

As India gears to become the new global growth engine and the world’s manufacturer, it will look to boost imports and thus will need to amplify its revenues source at the same time. Hence, current pressures on fuel prices can stay the momentum to meet self-imposed growth targets.

The Impact Assessment

  • On India:

On a macro level, fuel prices have accounted for ~88% of the total fuel import bill over the last 2 decades. The graph highlights the same on a calendar-year basis:

The Signal 4

As is observed, crude oil import accounted for 85%+ of total import bill in the year of the pandemic, i.e. when all activity came to an abrupt standstill! In fact, fuel price increase bear direct impact on country’s inflation indices across consumer and wholesale measurement scales.

Hence, increasing cost of fuel bears direct and indirect impact on every purchase made by institutions irrespective of scale. The one respite lies in the amassed reserves ($590 Bn – highest ever) which have enough firepower to cover a year’s worth of import costs.

On Indians: 

  1. First and foremost, the increase in oil prices is set to reduce your purchasing power as goods & services are set to become expensive thus leading to temporary hikes in your monthly budget. 
  2. Increase in oil prices will elevate cost of goods for companies, thus eating into their bottom-lines. The potential impact of reduced profits may translate into reduced share prices. The effect on personal investments can be limited by investing into mutual funds, as they champion diversification and are backed by professional management.

Anecdotally speaking, change in fuel price is the equivalent of the ‘Butterfly Effect”. However, does that need to worry you? Simply put, No.

Oil prices have increased before, and will increase again in the future. However, remember, every rise is accompanied with a fall. It is imperative to stay sound and not permanent changes on temporary actions (All of 2020 will attest to this).

Do write to us in case you wish to share your thoughts with us. We excitedly await to hear from you.

Till then, wish you a Happy weekend


Budget FY21-22 & Your Personal Finances

The Union Budget presented on the 1st of February 2021 was one cheered by analysts, economists and capital markets alike. While there is a lot to talk about, in this piece we will focus on the top five announcements that matter to the common investor.

1. Tax filing exemption to 75 years+ age investor
For senior citizens who only have pension and interest income, government proposed an exemption from filing their income tax returns. The paying bank will deduct the necessary tax on their income.
No other change in the income tax slab and income tax exemptions applicable for senior citizens.

Key clause:
If an investor earns any revenue other than the pension and interest income i.e. dividend income or any other, then they have to file income tax returns

This will reduce the compliance burden on senior citizens and make their life easy.

2. Positive restructuring in deposit insurance cover for bank investors
Government has made amendments to the DIGC act,1961. As per the revised amendments, depositors of the stressed banks that are temporarily unable to fulfill their obligations can get easy and time-bound access to their deposits up to INR.5 lakhs.
Earlier, the deposit insurance cover limit of INR.5 lakh was not applicable to stressed banks. It was only applicable if the bank’s license got canceled and liquidation proceedings were started.

The move is expected to reinstate depositor confidence in banks.

3. Taxation changes for Unit Linked Insurance Policies (ULIPs)
The government had made changes to taxation for ULIPs in the latest budget. As per the finance bill, for ULIPs taken on or after February 1, 2021, the maturity proceeds with an annual premium of more than INR.2.5 lakh will be taxable. Even individuals holding multiple ULIPs with an aggregate premium in excess of INR.2.5 lakh will have to pay tax on maturity proceeds.

Key clause:
The amounts received under such ULIP policies on the death of the policyholder will be exempt from tax.

This move will impact investors investing in ULIPs to avail tax-free returns. This will not affect investors holding policies other than ULIPs or ULIPs with annual premia not exceeding INR 2.5L.

4. No changes in tax slabs
No changes have been proposed to existing personal income tax rates.

5. Changes in provident fund contribution above INR.2.5 lakh
In order to rationalize tax exemption for the income earned by high-income employees, it is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of INR 2.5 lakh.

Key clause:
It will be only applicable to the employee’s share of the provident fund and not the employer’s.

This move is expected to impact a small category of high-net-worth individuals.

While there is a lot more to explore in the budget, these were the most important from a personal finance standpoint.




restructuring construct or form anew or provide with a new structure More (Definitions, Synonyms, Translation)

The Signal: The Week Highlights

1. GST Revenue Collection Is At All-Time High

The GST revenues during January 2021 are the highest since introduction of GST and has almost touched the ₹ 1.2 lakh crore mark, exceeding the last month’s record collection of ₹1.15 lakh crore.

The economy is showing signs of improvement across segments. India witnessed shoots of recovery in tax collection from companies, GST revenue and direct tax collection. GST revenues in January 2021 have been the highest since the introduction of GST. Corporate net profit recorded a multi-fold increase in September 2020 Quarter, and similar momentum is expected to continue.

2. Unprecedented Thrust On Infrastructure

The FM has made a bold move to budget an increase in the capital expenditure by 35 per cent to ₹5.4-lakh crore in FY22 from ₹4.1-lakh crore budgeted last year. The Central government’s capex next year will amount to 2.5 per cent of the GDP from 1.9 per cent in the previous year.

The continuous focus on infrastructure along with focus on real estate is likely to boost sectors which are directly indirectly related to infrastructure. Further, infrastructure projects will gain traction as the government focus on the rural economy and employment generation.

3. India’s Energy Sector Can Attract New Investment

India’s developmental stage engenders a rapid expansion of energy consumption and a need for robust energy security. world’s total primary energy demand would increase at less than 1% per annum till 2040. On the other hand, India’s energy demand would grow at about 3% per annum till 2040. This energy growth would be mainly supported by India and other countries in Asia.

India’s step towards green energy, expansion of capacity for reserves will create an opportunity for investors. The deployment of the latest technologies under Industrial Revolution 4.0 will improve productivity and efficiency. India’s growth story will be a tale of constant adaption, revision, and change.

4. No Magic Pill To Revive Demand Overnight

With such healthy growth rates marking firms selling groceries, staples, health, hygiene and personal care products, the government probably did not deem it fit to offer any magic pill in the budget to boost consumption overnight. No direct handouts were announced to push demand.

The budget took a longer-term view to restart the consumption cycle through structural reforms. Big investments announced in various infrastructure segments such as roads, public transportation and ports are expected to not only boost demand for steel and cement but also for local labor.

5. New Highs For Sensex

Continued exuberance around the Union budget and positive global cues lifted stocks further, with the benchmark Sensex index closing above the 50,000 mark for the first time, gaining more than 8% in just three days.

The budget is fueling a rally in all economy-driven sectors, along with banking. The uptick in global markets, resumption of foreign inflows, and strong earnings trend coming from December quarter results are other factors that are taking the stock markets higher. Markets are like life—they are chaotic and volatile in the short term.











The Signal: The Impact Of Budget On Stock Markets

The Impact Of Budget On Stock MarketsThe FY22 Union Budget is set to take centerstage on February 01, 2021. Coming in the midst of a global pandemic, the budget will look to address the socio-economic stress witnessed across state borders.

Amongst the many keynote events that transpired last year, no cause-action pair sums up all of 2020 than ones mentioned below:

Cause: virus pushed India into its 1st recession (read as: GDP decline) since our habit of publishing quarterly data, beginning 1996.

Action: In response India designed 1 of the largest relief packages, at the expense of it stretching Budget FY21 estimates.

The write-up above highlights why the annual budget merits the quantity and quality of discussions in the weeks nearing its announcement. It Is recognized as the financial charter in shaping the India of tomorrow. The tomorrow where India looks to become the new global growth engine.

The timing of the budget, in ritual-like fashion, brings with it, a mix of fortunately-unfortunate happenings. Why? Here’s Why:

Unfortunate: Market participants are flushed with worry about what impact budget can have on markets as many lend their voice (read as: noise) in stating hypotheticals.

Fortunate: This week’s Signal edition is designed to help you stay tone-deaf to those hypotheticals while assessing impact of Budget on markets.

Budget & Markets – Finance’s Asymptomatic Relationship

Right off the bat, let us state that the relationship between markets and budget is more an impression than an image. In studying figures, it is clear that markets treat Budget as just another event. Appearing dismissive on 1st look, do realize that markets are built to scale up/down on current occurrences till a new event comes its way.

The table below looks at how markets reaction over the last 5 years in pre-&-post budget scenarios to fully assess “apparent” impact of budget on markets:

As is observed, the effect of budget on market movements dilutes the longer one stretches the time-line from its announcement date.

Besides, all budgets are designed to propel the country across all its growth parameters. Hence, as the country grows, so do the markets.
As an example, the run-up to 2016 budget saw market participants tense up with many opting for exits as markets contracted by 10%+ in 3 months leading up to the budget. Today, 3 years later, all those who chose to stay invested at the time have enjoyed staggering returns of ~55% on their investments!

This link, rather de-link, between markets and budget has been capitalized upon by FIIs as well. In observing the budget’s nature of welcoming health-&-wealth into the country, FIIs have not shyed away from buying into Indian markets. The table below highlights the same:

Like in the past, FIIs have maintained their buying spree this time round too. FIIs buying activity in the run-up to this budget is highlighted below:

India ended CY 2020 being the only emerging country to witness positive FII flows. The trend seems to carry in 2021 as well as FIIs remain bullish on the country irrespective of keynote events in ongoing pandemic and upcoming budget.

Budget & Time – A short-lived Love Story

The beauty of budget lies in it having visible short-term illness but long-term wellness on markets and its participants. This time round, the short-term effect of budget is paired with “apparent” stretched market valuations, hence adding to notion of market tumbles.

To address this near-term worry as well, we reviewed the daily returns markets have given since its inception on April 30, 1996. Here’s our discovery:

  • Over 6,160 trading days, markets delivered positive 1-day returns for 3,436 times, 56% of total bucket size
  • Of the positive returns, markets delivered >2.5% returns on 241 trading days
  • Since inception, markets have given 1177% absolute returns or ~12% CAGR returns!

As is observed, markets in the long-run have maintained their return slope to be upward sloping. This curve is inclusive of the budget since and more. Hence, as we walk into Budget FY22, we continue to uphold our golden advice of staying invested and not act out of hesitation.

Investor Takeaway

The annual budget is arguably the most important financial event to kick off the money cycle for the next fiscal year. It bears direct and indirect investments on all soil within country borders. It is the degree of impact that is important to assess when talking of facts & figures making mentions in the finance minister’s words and woes.

In line with aforementioned, we observe that, more than markets it is its participants who nail-bitingly await the implications of the budget on their portfolio investments. But as we learnt from this note, this notion is manufactured motion as markets tend to inculcate the learnings from the budget into earnings for those stay sans-sense to market rumors.

In re-iterating, we recommend investors to not give in to temptations and take advise from investment professionals before taking any qualifying portfolio actions.

Have any thoughts about the budget you wish to share with us? Do right away, for we excitedly await the same.

Till then, Happy Weekend

The Signal: The Week Highlights


  1. India’s Goes From Rumble To Recovery

Businesses are seeing a sharp recovery. India will be among the world’s economies to rise above pre-pandemic levels as covid vaccines and stimulus plans are rolled out.

As the economy gets back to pre-covid production output and business resumes to normalcy, a sustained earnings revival is on an anvil. India has witnessed shoots of recovery in tax collection. GST revenues in December 2020 have been the highest since the introduction of GST. PMI for both manufacturing and services were in the expansion zone.

  1. We Went Local. Now We Go Global

Global companies were asked to take advantage of policy reforms initiated by his government in the areas of manufacturing, infrastructure, digital space, and healthcare. Atmanirbhar Bharat Abhiyan is committed towards global good and global supply chain.

It is necessary to identify sectors which has a competitive advantage. India is not as competitive as compared to countries bordering it. Non-financial and financial measures may help the identified sectors to get geared up. Commercialize the sector’s capacity, a step towards being an export-oriented nation.

  1. India’s Innovation In Infrastructure

There is a need to consider innovative financing options, including backing the sector with risk capital, extending credit guarantee schemes, repurposing the existing funding modes, and creating a new Development Finance Institution.

The vital aspect is the need to monetize assets, particularly roads. The monetization will help churn the assets and provide funding for new projects. Existing guidelines do not allow pension and insurance funds the flexibility of funding infra projects.

  1. IMF Claps As India Grasps

IMF upgraded its gross domestic product (GDP) projection for India to a contraction of 8% in FY21 from an earlier estimate of -10.3%, as there are encouraging signs of economic recovery in high frequency indicators.

The economy is showing good signs of improvement across segments. GST revenues in December 2020 have been the highest since the introduction of GST. Corporate net profit recorded multi-fold increase in September 2020 Quarter and similar momentum is expected to continue.

  1. RBI Breathes New Life Into NBFCs

RBI’s proposed guidelines for non-bank lenders are not as stringent as feared and are expected to improve the funding conditions of the sector and provide more confidence to potential investors.

The proposed norms and guidelines are steps towards regulating NBFCs. Also, expectations built-up around the news of conversion of NBFCs to banks. The proposed norms and guidelines will nurture NBFCs risk management. Further, it will result into better transparency in operations of NBFCs.