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.

The Indian equity markets went up in euphoria on account of the return of Narendra Modi as prime minister. For the first time in its history, Sensex and Nifty crossed new milestones of 40,000 mark and 12,000 marks respectively. However the euphoria is likely to be short lived, as macroeconomic factors will catch up eventually. The new government faces a lot of challenges in reviving the economy ranging from consumption slow down, liquidity crisis, unemployment, stagnant private sector investment etc. On top of this, the global factors are not supporting either. There is an ongoing China-USA trade war that is impacting the entire world.