The Budget has become one of the key drivers of the market movement in the country, following the economic reforms in 1991-92. Not only the post-budget, but the pre-budget movement of the market is also often guided by overall business scenario, wish-list presented by corporates, expectations of market participants and rumours and speculations. But if the data of last several years were to be taken into consideration, it would be clear that there has been no particular trend as to pre and post-budget market movement. In the last decade, eleven budgets have been presented including an interim budget in February 2004.
On five occasions out of the 11, the market has given negative returns in the two weeks ending on budget day and out of these five occasions, the market has fallen in 3 years in two weeks post-budget. In the rest two years, the market had reversed the losses, albeit marginally, in the post-budget period. In four out of those five occasions, market had taken a hit on D-day also, thereby proving the fact that lack of positive surprises actually has an impact on overall market movement, though in short-term only.
But experts, who believe that policy reforms are now undertaken more outside the budget than inside it, have their own implications on budget expectations. “Over the years, budget has been losing its importance as a major event that tends to have an impact on the markets in the long-run. Major reforms have been undertaken in the past budgets and since last few years, reforms tend to come throughout the year rather than being punched up in one budget,” says Jasani. According to Jasani global factors are so far nullifying the initiation of pre-budget rally.
“However, a minor pre-budget run-up could still happen closer to D-day. Also if agri-reforms are initiated this year in a big way, then markets may lighten up post-budget as it is a major segment, where effects of reforms have not yet been felt. Moreover, to sustain high growth rate, we need agri-reforms and rural infrastructure development,” says Jasani. “The market reaction to budget has always been a temporary one. This year the government will be presenting its final budget as elections are due next year. So we expect a normal budget, rather than a radical one. Therefore, this year, the impact on market will be less compared to earlier years, when reformist budgets were presented,” said Deven Choksey of KR Choksey Shares & Securities Ltd.
Choksey said since this year too the Centre’s major focus is on agricultural growth and rural infrastructure development, market players are less confident of a pre-budget rally owing to lack of major expectations for the capital market and uncertain global markets.
There have also been cases where the post-budget market run-up is contrary to the budget day movement.
This is due to the fact that the budget in itself is too long for market participants to go through in a day. The blueprint of budget, as is usually called, brings out much more details into the public arena, thereby affecting post-budget market movement.
