It’s a nippy Monday morning, barely hours away from the presentation of the Union Budget 2021. Homes and offices would soon switch on the telly, while mobile phones would light up like Christmas trees with budgetary highlights, news snippets and, afterwards, reactions from all quarters, commoners and industry stalwarts included.

A lot of build-up has been evident this time for what would presumably carry the most tell-tale batch of proclamations ever on the present government’s reformist agenda. The investor fraternity, for its part, wants the finance minister to signal clear policy initiatives covering critical areas of the economy.

Specific demands raised on various fora have related to various aspects of personal finance, securities regulations, banking, insurance, direct taxes and so on. The individual investor, forever looking at ways to allocate more resources to create a bigger asset base, would want the budget to spell out reforms on all major fronts, especially equity and debt markets.

The Average Joe, following what the FM may deliver today, may just feel encouraged to save and invest more doggedly. Perhaps he would opt for more market-driven performance this time and depend less on assured returns. At the same time, with dark visions of Covid-19 still etched in his mind, he would really want to de-risk his exposure, and even direct a bigger share of his portfolio towards life and health insurance.

Quo vadis?

Never mind the forthcoming budgetary provisions, forget the anticipated reforms, banish all ideas of new initiatives from even the farthest recesses of your brain. Instead, train your mind to consider only the opportunities and the challenges that the rest of 2021 is quite likely to pose. The scope and impact of these would have probably elicited mixed feelings deep inside you already.

Let me come to the headwinds first, and reserve the tailwinds for another day. First and foremost, an ordinary investor would have to overcome a set of stiff challenges, including an extremely unstable equity market that lately seems to have entered the overbought zone.

I am specifically referring to the relentless advance recorded by the premier indices in recent months.

The bellwether BSE Sensex has topped the 50,000 points mark already (Thursday, January 21, 2021, would forever remain in the record books) though it couldn’t sustain at that levels in the subsequent trading sessions. However, the upward trend has added an edge to the view that plenty of fresh money has already come into play.

It must be pointed out in this context that the advance is rather one-sided; after all, only a limited number of large-cap stocks have propelled the market to the height it has reached. The mid-cap story is considerably different in comparison. Much to investors’ discomfort, stocks of many smaller yet prominent companies have not kept pace in recent days.

The debt market has meanwhile remained uninspiring. Investor sentiments here have turned somewhat cooler. Returns from actively-managed debt are nothing to write home about these days.

Deposit rates are far too frigid — a matter of concern for senior citizens who greatly depend on these instruments.Investments in sundry fixed-income paper hardly beat inflation. Further,if you add the burden of income tax to your woes, the tale turns rather sour indeed.

Your deliverables

Whichever way the market moves, you need to pay consider a few things while working out your financial plan.

• Do not rely on historical trends, focus instead on what you believe would actually happen. Allocate the resources at your disposal to various asset classes only after you evaluate your risk appetite.
• If your portfolio has low equity content, remember stocks have already gone up substantially. A correction is very much in the realm of possibility. So, do not allocate all that you have to equities right away.
• It stands to reason that gradual, systematic investment in equities (or any other risky asset) is the only other viable option. If you are keen on a bunch of stocks, track them carefully. Use online tools to do this effectively. Buy every time when valuations soften. Stay diversified at all times; therefore, select your stocks from a wide range of sectors.
• If you are the risk-taking but patient type, move your money methodically from debt to equity. Keep it in fixed-income instruments initially, and then regularly shift it in tranches to the stock market.
• Try out newer asset classes if you have not tested them. Commodities, for instance, are truly a varied and diverse category. You may yet find many investment opportunities there. It is a well-regulated market and a diligent investor would be able to derive considerable value from it over a span of time.

The last word

Remember, every budget is special, each is foreshadowed by unique circumstances. The 2021 edition would be no different, coming at a time the world is still reeling under the effect of a lethal disease. And the economy, where green shoots are just getting evident, is teetering on the brink in more ways than one.

Common investors, many of whom have fallen back on household savings during the past few months, have sacrificed a lot in these uncertain times. The fact that a few aspects of the market have been reinforced is a boon for those who kept their faith. Equities, for instance, have advanced markedly — for those who have actively participated in it, there is reason to cheer.

The writer is director, Wishlist Capital Advisors