Just a quick note on the Union Budget and its impact on stock markets. Remember that the market is driven by two factors: One, sentiments and two, fundamentals.
For example, when the PM makes a statement about the general market direction and the market moves in line with his statements, it’s more likely due to sentiments rather than fundamentals. Similarly, when the finance minister raises taxes on capital (for instance, long term capital gains or short term capital gains), these don’t impact the expected future cash flows of a business (fundamentals). But they do impact the sentiments of investors, both domestic and foreign, negatively.
For long term value investors, however, it is imperative that they learn to distinguish between market moves that are driven by sentiments versus those driven by fundamentals. For portfolio construction as well as performance, fundamentals are what matter most. And by fundamentals, I mean those factors that impact the cash generating ability of a business.
What macro factors impact a business’s cash flows?