Stocks that shoot up or fall sharply on Budget day seldom sustain that trend in the months thereafter. So, if you are planning to spend the Budget day in front of your trading terminal, don’t.
“It is not prudent to buy stocks based on Budget announcements alone. The execution of the proposals is the key,” says Mariam Mathew, Associate VP and Head, Chola Securities. Many of the Budget proposals do not see the light of day.
Stock prices are also influenced by a host of other factors that result in making ephemeral many a Budget proposal.
In the 2015-16 Budget, the stock of the Multi Commodity Exchange shot up 18 per cent on the announcement of the SEBI-FMC merger. However, the stock has fallen over 30 per cent in the past one year. The merger has happened, but nothing much more. The market expected institutional investors to get the green flag to enter the commodity futures market, and hoped commodity options would be introduced. But these changes have not happened, yet.
Similarly, stocks of private banks such as Axis Bank, IndusInd Bank and YES Bank rallied sharply on Budget day last year after the Finance Minister made lower-than-expected provisions for recapitalisation of public sector banks.
Axis Bank, for instance, rallied over 8 per cent. But, today, it stands 37 per cent lower. And, YES Bank is down 20 per cent from the traded value the last Budget day. Increasing concerns over bad loans have hurt private bank stocks too.
Similar trend earlier tooSimilar was the case post Arun Jaitley’s maiden Budget in 2014-15.
That year, on July 10, realty stocks hit the roof as several sops were doled out to the sector, including introduction of REITs, liberalisation of FDI (foreign direct investment), norms for smart cities, and a push to low-cost housing. Puravankara Projects, DLF and Mahindra Lifespace surged.
However, a year later, these stocks are languishing. Mahindra Lifespace is down 20 per cent, DLF 49 per cent and Puravankara 38 per cent. These stocks dropped as real estate demand failed to recover and companies continued to face the stress of debt and interest costs.
REITs too didn’t take off and the sector faced a funding crunch.
This trend holds good if we go a year back to the stock movements post Budget 2013-14.
As excise duty hikes for SUVs were announced that year, auto stocks, including of M&M, dropped 2 per cent. But investors who sold the stock would have rued their decision a year later. M&M gained 12 per cent and Tata Motors rose 45 per cent.
As another Budget day dawns, look carefully before you leap into the market.