Budget 2011: Time to focus on short-term debt

The equity markets closed flat, and there is little impact on realty or precious metals.

Debt markets, however, have gained some clarity from the budget and experts suggest that investors can look to shorter-term funds for parking their money.

Debt side investors may continue to stick to Fixed Maturity Plans (FMPs) which invest in short-term papers. This is because the government is borrowing less in the market. “Interest rates will continue to rise at least by 50 basis points from here on. Investors are clearly focused at the shorter end of the curve which are fixed maturity plans,” said Saurabh Nanavati, CEO, Religare Mutual Fund.

On the equity side, investors could look at funds which have an exposure to those sectors for which the budget has shown a positive bias. “Some sectors towards which the budget has shown a positive bias are agriculture, fertiliser, shipping, cigarettes, education and health. We could look at a re-allocation towards funds with an exposure to these segments,” said Rajiv Bajaj, vice chairman and managing director, Bajaj Capital.

The markets are likely to look to global cues, including crude in the days ahead, said experts.

The budget has made certain changes have been made in the central excise rate to prepare a base for Goods & Sales Tax, which will be rolled out in June 2011 on a pilot basis.

This duty will apply to jewellery and articles of gold, silver and precious metals that are sold under a brand name. The prices that the consumers will pay on branded jewellery will be inclusive of the 1% duty.

While this could increase the price for branded jewellery, the proportion of investors who use the route for their exposure is limited.

“Branded jewellery is only 1.5% of the total jewellery turnover in India. It’s not the 1% duty that is of concern, but we are unhappy because this will include bureaucratic interference in our sector,” says Rajiv Popley, director of Popley and Sons.