Why Budgets no longer matter to the stock market

Bavadharini K S | Updated on: Jun 30, 2019
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GST, off-Budget policy-making have halted the wild gyrations in Sensex

Even as all eyes are on the Finance Minister, as Nirmala Sitharaman prepares to present her maiden Budget, the stock market is quite indifferent to annual exercise. In fact, the Budget has not been a material event for stocks, for the past 10 years or so.

An analysis of the Sensex movement on and around the Budget day, since 2000, shows changes in the market benchmark have been muted and of late there has been no euphoric pre-Budget rallies.

This is in contrast to the the wild gyrations of the Sensex on the day of the Budget, a decade ago.

This could be due to various policy announcements made outside the Budget, the GST limiting any action on indirect taxes, and the many off-Budget items bringing down the relevance of the annual exercise for the market.

Budget day movement




Since 2010, the Sensex’s gains or losses on the Budget day have been less than 1.5 per cent, except in 2017, when the index rose 1.8 per cent. However, in the 10-year period from 2000 to 2009, the Sensex gained or lost over 2 per cent on seven Budget days.

Pre-Budget rallies, too, have become conspicuous by their absence. From 2000 to 2007, ahead of the 2008 crisis, the Sensex recorded gains in six out of eight years in the month leading to the Budget. But from 2008 to 2019, it has recorded losses in the month before the Budget, in nine out of 12 years. This year, it has remained almost flat.

There is no clear trend in the Sensex movement a month after the Budget day. From 2000 to 2018, it made gains on eight occasions, recorded losses nine times and closed on a flat note twice. “The Budget has been losing importance for the market over the past few years,” concurs Deepak Jasani, Head of Retail Research, HDFC Securities. “If one excludes one week prior to and one week post Budget, the market seems to be chugging along its prevailing trend.”

However, hopes are high for a path-breaking Budget this time. Ajay Bodke, CEO & Chief Portfolio Manager (PMS), Prabhudas Lilladher, says: “Special focus should be paid to auto and real estate as they have significant multiplier impact on the economy. Also sops should be offered to encourage people into (long-term) savings products.”

What investors should do

“Investors should look at gradually enhancing their exposure to large- and mid-caps — ideally, through mutual fund schemes with a good track record, and also through smart beta PMS,” adds Joseph Thomas, Head of Research, Emkay Wealth Management.

Published on June 30, 2019

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