Why are gold, short-duration debt funds attractive before budget 2025 date?

Budget 2025 strategy: The Union Budget is a key market-moving event that investors eye quite keenly as it holds immense influence over the Indian stock market. The announcements made by the finance ministers in the Budget set the stock market tone and often result in high volatility.

A 25-year history of market movement on Budget Day shows that only in eight instances has the market moved less than a per cent. The data further shows that during this period, the market gained the most in 2021 when it rallied 4.7% while its worst performance was in 2009 when it crashed 5.8%.

In most instances, 15 out of 25, the Budget has sparked a sell-off in the market, a factor that leads to investors staying on the sidelines ahead of the Budget.

This time, too, the stock market is experiencing sharp moves in both directions in the run-up to the Budget, catching investors off guard.

Pre-Budget Strategy

Amid such uncertainty, investors must ensure that they pick the right asset classes and structure their portfolios well to protect themselves from any sharp drawdowns.

Advising investors on how to position themselves ahead of the upcoming Budget, Sonam Srivastava, Founder and Fund Manager at Wright Research PMS, advised investors to keep a diversified portfolio, consisting of equity, debt, and gold. She also advised keeping cash in hand to capitalise on any opportunities that may arise.

"Budget announcements often lead to heightened volatility due to speculation and knee-jerk market reactions. Investors can protect themselves by maintaining a balanced portfolio with exposure to diversified equity, debt instruments, and gold. It is advisable to hold cash reserves for post-budget opportunities and avoid speculative trades in the run-up to the announcement," Srivastava said.

Gold and short-duration debt funds will likely offer the best risk-adjusted returns in the pre-budget phase, as they provide stability amid uncertainty, according to Srivastava. 

Given the uncertain environment ahead of the Budget and newly-elected Donald Trump's policies, investors are already pivoting to gold, driving gold prices to record-high levels.

Once clarity emerges post-budget, investors can reposition towards equity themes aligned with the announced policies, advised Srivastava.

Stock Market Expectations from Budget

Overall, analysts expect the Budget to focus on fiscal prudence with announcements aimed at reviving the Indian economy, which is currently facing a sluggish phase. From rationalisation in personal taxes to a hike in capex are some of the expectations of stock market investors this Budget from Finance Minister Nirmala Sitharaman.

Manish Chowdhury, Head of Research at StoxBox, said from the capital market perspective, we believe that policy continuity along with fiscal prudence in the upcoming Union Budget will be key triggers, especially considering the recent slowdown in the Indian economy and corporate earnings.

"A 10-12% growth in capex, a fiscal deficit target of around 4.5% for FY26, and measures aimed at reviving private sector capex would set a positive tone for markets. We expect the finance minister to simplify tax structures and raise tax exemption limits to boost consumption in the economy, especially the urban side which has recently shown signs of a slowdown. Though we do not expect the government to foot a steep subsidy bill, we anticipate targeted measures for the agriculture sector aimed at boosting productivity. We do not anticipate any changes to the STCG, LTCG, and STT, which again should be taken in a positive stride by market participants," Chowdhury added.

Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.