I. Annual Budgets
Before the end of each financial year on March 31 of each year, the Union Government presents the annual budget. Traditionally, the budget used to be presented on the last day of February of each year, but since 2017, when the then Finance Minister Arun Jaitley presented the budget, it has been moved to the first day of February.
II. Effect on Stock Markets
The presumption is that the budgets have a significant impact on the stock markets. But the important question is whether it has an impact on the trend. The immediate impact on the markets is what gets the attention and the headlines. But more significant is the long term impact and the trends it leaves in its wake.
III. Short term effect
We will define short term as both the market reaction on the day of the budget and the reaction in the months following the budget. The table below gives a nice synopsis of this.
| Year | Nifty permformance on Budget Day(%) | Year | Nifty permformance on Budget Day(%) |
|---|---|---|---|
| 2023 | -0.2 | 2011 | 0.5 |
| 2022 | 1.4 | 2010 | 1.3 |
| 2021 | 4.7 | 2009 | -5.8 |
| 2020 | -2.5 | 2008 | -1.1 |
| 2019 | -1.1 | 2007 | -3.8 |
| 2018 | -0.1 | 2006 | 0.2 |
| 2017 | 1.8 | 2005 | 2 |
| 2016 | -0.6 | 2004 | -3.1 |
| 2015 | 0.6 | 2003 | 1 |
| 2014 | -0.2 | 2002 | -4 |
| 2013 | -1.8 | 2001 | 4.3 |
| 2012 | -1.1 | 2000 | -3.9 |
The table shows that the budget tends to affect the markets. In less than one third of the cases was the movement of the markets on budget day less than 1%. In fact in 7 instances in the last 24 years the markets moved more than 3 % in either direction. So there is a significant move in the markets on budget day.
What happens to the market trend? In more than 50% of cases the pre budget trend (the month preceding the budget) was reversed in the post budget month. Historically markets tend to rise before the budget in anticipation of goodies but the falls in the month following the budget.
IV. Long term effect
In the long term however, the effect of the budget wears out and the market tends to revert back to its underlying trend. This is particularly so in the case of individual sectors and stocks. Therefore in terms of effects that sectors that are in trend at the moment such as infrastructure, public sector and realty should continue to do well unless there is something draconian in the budget. Since this is a pre election interim budget, the prospect of that is very low.
Mr. Soumitra Sengupta