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Mount 50K has so far proved to be slippery. The Sensex has tanked 7 per cent, or over 3,500 points, in the seven trading sessions ahead of the Budget. This has been the worst seven-day decline in the run-up to the Budget in the last 10 years. A spirited charge by bears has sent bulls back to their barns. But, if history is any indication, there is a 70 per cent chance that Finance Minister Nirmala Sitharaman’s Budget will swing the trend.
An analysis of market performance in seven days ahead and post the Government announcing its annual financial statement and reforms, shows there is usually a switch in sentiment. This is no happenstance because the change in market performance has happened in 2013, 2014, 2016, 2018, 2019 (interim), 2019 (final) and 2020. To be clear, the change in sentiment means when the market is weak ahead of the Budget, it strengthens post-Budget. When the trend is strong ahead of the Budget, the sentiment weakens after it ( see table ).
Rise after a fall
With chips down for bulls going into the 2021 Budget, all eyes are on the Finance Minister's ‘ bahi khata ’(ledger). There have been enough signals from the government that the Budget could be growth-focussed, without worrying too much about fiscal constraints. Markets expect a step up in capex, recapitalisation of PSU banks, asset sale push, sops for real estate, and tax concessions for the common man, which could bring the bulls back into action.
In 2020, the Sensex slipped 1.6 per cent in the seven trading sessions ahead of the Budget. Despite dropping by 2.4 per cent as a knee-jerk reaction to the Budget on the apparent lack of big bang reforms, the market was up 3.1 per cent after seven days when the realisation dawned that there were no negative surprises in the Budget.
Bullish investors today would be hoping that markets do an encore of 2016. The market was down 2per cent in the seven trading sessions leading to the February 29 Budget. However, in the next seven days, the Sensex gained nearly 8 per cent as the decision to stick to projected fiscal consolidation path and cut net borrowing programme opened up space for potential rate cuts by the RBI to stimulate the economy.
Fall after a rise
In 2019, the market dipped after rising ahead of the Budget. Storming to power for the second time, the Narendra Modi government was expected to announce short-term stimulus. In anticipation, markets inched up one per cent ahead. On July 5, 2019, Sitharaman didn't announce any of that and also imposed a surcharge on the super-rich which miffed FPIs (later rolled-back). A similar trend was seen in 2018 when markets fell 5.3 per cent in seven days post-Budget thanks to combination of global market volatility and imposition of long-term capital gains tax on equities.
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