Budget 2016, some views

As it sometimes happens at this time of the year, I'm writing this before the Union Budget for 2016-17 is presented by the finance minister, Arun Jaitley. I'm not going to stick my neck out and make predictions about the Budget. In any case, I'm not one of the commentators who are in the predictions business. However, all I'll say is that based on the news that has been floating around, equity investors are probably going to be quite disappointed if there is any fiddling with the long-term capital gains tax.

However, I don't think we should bother much about things of this kind. They are important and would certainly determine your eventual returns, but they are actually much lower down the rung in terms of importance than the actual choice of investments. The stocks you invest in are a far greater determinant of what returns you get out of investments. If you make wrong investments, then believe me, it's not going to be of much comfort that you could have paid less tax on the profits, had you made profits.

There was a time, years ago, when a Budget could make or break a company. Entire industries could be made more or less competitive depending on some duty or regulatory change. Some companies were much better than others at influencing the whole process. For years, friends in the media would pore over the Budget documents, looking for the 'Reliance clauses', since Reliance Industries' reputation for being able to manage such things was legendary. A leading business magazine used to do an entire feature projecting the actual rupee impact on the profitability of hundreds of companies. Or maybe they still do; I haven't really paid attention. But, generally speaking, those days are long gone.

Actually, investing by double-guessing the Budget, or by double-guessing any event was never a good idea. A few days ago, I was watching a talk by Udayan Mukherjee, a famous business TV anchor who for better part of a decade had practically come to symbolise this whole approach to stock investing. Every morning, as the markets opened, he would be there, live on CNBC-TV18, giving a running commentary on every tick of the indices. It was breathless stuff, resembling more the radio cricket commentary of earlier years rather than anything to do with investing. However, he is a changed man now. He said in this talk that only two things matter in investing: the quality of management and the valuation at which you buy a stock. Everything else is irrelevant.

It would be hard to disagree with this piece of wisdom. Of course, the list is small, so it's more about what is relevant than what is irrelevant. So if one agrees with this kind of a view, does it mean that everything else is irrelevant, including all the pages of data and analysis that we present to you?

Not quite. Saying that only quality management and valuation matter is a good rhetorical point but not a recipe for investing. It's like the old joke. A novice investor asks an old-timer, 'How do you make money in the market?' The wise man answers, 'Nothing could be simpler: buy low, sell high.' The beginner asks, 'How can I learn to do that?' Comes the response, 'Ahhhh... that takes a lifetime.'

Similarly, what is quality management? What is the right valuation? Discovering these takes a lot of work, experience and cool-headed analysis. What it doesn't is watching events like the Union Budget. The Budget (hopefully) contains a lot that will eventually enable growth, but it shouldn't be a reliable guide for what stocks will do well and what will do badly in the short term.