Which asset class should you buy after Union Budget 2013?

Updated: Monday, March 4, 2013, 15:55 [IST]

Following the Union Budget 2013 there is no paradigm shift that is needed towards or against any asset class because nothing much was announced for each of the asset classes including equity, debt and gold. However, real estate investors have a little more to cheer then others after the Union Budget increased the tax exemption on interest on home loans. Let's take a quick look at how things have changed and are likely to benefits various asset classes after the Union Budget and where you should park your money.

Equities

The Union Budget recommended an STT reduction on Equity Futures, which is hardly significant. Mutual Funds and ETFs also saw some reduction in the STT payable - again of very little consequence. The only reason one can consider equities at the moment is that they have fallen 6-7 per cent from their 2013 peaks. In fact, after the Budget the Nifty cracked almost 1.8 per cent. So, the only incentive to invest in the equity market has not come from the Union Budget, but, from a falling market.

Debt

The Union Budget 2013 announced the need to set up a dedicated debt platform from stock exchanges. Again, no direct impact on debt instruments. Only the RBI's monetary policy, which largely controls interest rates can have an effect on debt yields. In any case, aside from the Budget a few banks have already increased fixed deposit rates like Punjab National Bank, Karnataka Bank and others. So, at the current interest rate levels, bank deposits fetch around 8.00-9.25 per cent interest rates. WPI Inflation has fallen to 6.62 per cent, so the bank rates of interest beat inflation, which means your real rate of returns is higher. So, this makes a case for investing in select debt instruments.

Gold

The widely anticipated hike in import duties on gold, did not come through. The FM in fact went ahead and hiked duty free jewellery imports for men and women in the Union Budget. In any case, to prevent gold investment the FM has announced an index inflation bond, to wean away gold investors. Whether this would work, given Indian's penchant for gold, remains to be seen. In any case at the moment gold prices have gone nowhere since last September and if an investors wants to invest, it's best to look at other asset classes.

Real Estate

Real estate investors had a little more to cheer then others after the Union Budget increased the tax exemption on interest on home loans from Rs 1.5 lakhs to Rs 2.5 lakhs. With interest rates likely to fall further, real estate looks a good bet after the Union Budget, as home loan rates could fall. Also, declining interest rates could benefit developers.

Clearly, after the Union Budget the best asset class would be equities, real estate, debt and gold in that order. For equities one can wait for the Sensex to fall below 18,000 before investing.

GoodReturns.in