The stock markets, already hit by the sell off in global markets, can hardly be blamed for not saluting what seems to be a budget that is focused on increasing the long-term growth potential of the Indian economy.

So while short-term investors are probably disappointed, we think there is reason for the long-term investor to look at the budget a little more positively.

Before we discuss the Union Budget in more detail, let's try and make sense of the global stock market sell off.

On Monday, China took measures to curb illegal share offerings and also banned investments with borrowed money in an attempt to cool off the stock market. What followed was a huge sell off (down by over 9% for the day), which then reverberated across emerging and developed markets alike.

While one may be tempted to blame it all on China, a look at one key indictor of stock market valuation, the price-to-earnings ratio, may suggest that the markets were anyways due for a correction. The developments in China may have only been a trigger.

		Index (% Change since...)
	1-Yr forward P/e	1-Mar-06	1-Feb-07	Current Index
Brazil (Bovespa)	10.41	10.1%	-3.7%	43,145
Russia (Micex)	11.17	41.5%	-5.4%	3,182
India (BSE Sensex)	18.78	22.5%	-9.3%	12,938
India (NSE Nifty)	16.97	19.9%	-9.5%	3,745
China (Shanghai Composite)	33.99	120.5%	3.4%	2,881
USA (DJIA)	14.33	10.5%	-3.6%	12,216
Japan (Nikkei)	23.42	10.3%	0.5%	17,604
Hong Kong (Hang Seng)	15.69	24.2%	-3.8%	19,652

From the table above it is very apparent that the Chinese stock markets were very expensive compared to other markets. Despite the sharp fall in recent days, it's still positive for the whole month, indicating that the rise earlier in February was fantastic. Not to mention, that after the sell off, it remains the most expensive amongst what are popularly referred to as the BRIC (Brazil-Russia-India-China) economies.

The 'fear' triggered by the fall in the Chinese markets impacted other markets as well. This is not surprising given the increasingly integrated nature of not just the financial markets but also the economies (international trade) across the world.

Such sell offs also remind investors who until now were not paying much heed to potential risks, about the risky nature of the stock markets, and therefore, lead to further sell offs. Indeed, in recent times, investors across the world did not seem to paying much heed to potential risks.

India, being a part of this increasingly integrated world economy, naturally took a hit too. In terms of valuations we fit in somewhere in the middle of these countries. In our view, this valuation is not expensive; it's not cheap either. In fact from a long-term investment opportunity perspective we continue to find the present levels attractive.

This is not to say the markets will not fall further. They may; over the short-term there may be even bigger corrections owning to some global or domestic investments. But the long-term trend continues to be positive, in our view.

Now, coming to the Union Budget: There is definitely a lot more that the Finance Minister could have done. But, let's evaluate him for only his acts of commission here.

Broadly, there are three areas which seem to have been given a thrust -- agriculture and related infrastructure development, initiatives on improving overall health standards and increasing the literacy level, not only at the primary level but also higher education.

None of these initiatives will result in significant short-term benefits. The benefits will trickle in to begin with, and over time, if these plans are executed well, will gain momentum and ultimately have significant impact on long-term economic growth. How, do you ask?

If India has to move to a higher growth plane, it will definitely need to improve the state of the primary sector, on which over 60% of the population is dependent. Conversely, any significant improvement in the primary sector will have a huge impact on national income as there will not only be a growth in production, but consumption too will get a boost as the hitherto not-so-well-off people living in rural India will have more money to spend.

An improvement in health standards and the literacy rate will increase the overall productive capacity of the economy. There will also be productivity related benefits that are linked to a healthy and better educated work force.

So, from a long-term perspective, it is a thumbs-up. One only hopes that the execution of these plans will be a lot better as compared to in the past.

Union Budget & YOU

So, how should you plan you finances in the post-budget environment?

As far as your long-term plans are concerned, there is no need to effect any change. In fact, you should use the current sell off in the global and Indian markets as an opportunity and consider adding -- in small amounts relative to your overall investments -- to your equity investments.

For your short-term plans, some change may be necessary. This is largely due to the fact that investments in Liquid and Money Market funds no longer enjoy the large tax differential benefit that they used to.

The net yields on these funds will be a lot lower than they used to be.

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