The Union Budget of India – a financial exercise in the largest democracy of the world! It is the day when the Finance Minister of India cracks the whip as he presents the Annual Financial Statement. The Indian hoi polloi are so used to increase (well sometimes decrease too) in taxes, duties etc. It is that day of the year that holds so much of hope and despair too. 11 am IST and the markets watch with bated breath as stocks either soar high or come hurtling down.
As we approach the budget day of 2016, the question on top of everyone’s mind then always is how will the stock market behave this year? At Stock Architect, we are always gleaning through information trying to bring you something interesting. We found this post which we are sure you will love to read and understand. May this Budget Day ring in prosperity for all investors.
How Stock market behaves during budget?
Panic in the stock market? Historical budget data says NO
Market is going to go down substantially!!
Government is going to give this time a very good budget !!
This budget is very very unique and a game changer !!!
Above three are most running rumors or humors that move around stock market, but they are present for all budgets. The following table indicates data of returns by Sensex in pre and post budget sessions for recent four budgets.
| Pre-Post |
2012 |
2013 |
2014 |
2015 |
| 1st day |
-1.55% |
0.17% |
1.25% |
0.63% |
| 2nd day |
-1.09% |
0.69% |
0.40% |
0.48% |
| 3rd day |
-0.16% |
0.04% |
1.27% |
-0.78% |
| 4th day |
2.09% |
-1.62% |
-0.07% |
-0.88% |
| 5th day |
0.48% |
-0.04% |
0.54% |
0.10% |
| 6th day |
1.28% |
0.08% |
0.53% |
0.01% |
| 7th day |
0.59% |
-1.64% |
-1.98% |
-0.90% |
| 8th day |
-1.36% |
0.72% |
-0.54% |
1.65% |
| Budget |
-1.19% |
-1.52% |
-0.28% |
0.48% |
| 10th day |
-1.10% |
0.30% |
-1.37% |
0.33% |
| 11th day |
0.25% |
-0.21% |
-0.07% |
0.46% |
| 12th day |
1.65% |
1.40% |
0.89% |
-0.72% |
| 13th day |
-2.30% |
0.57% |
1.27% |
0.23% |
| 14th day |
0.96% |
0.84% |
0.04% |
-2.05% |
| 15th day |
-1.78% |
1.39% |
0.31% |
-0.47% |
| 16th day |
1.20% |
-0.19% |
0.29% |
-0.18% |
| 17th day |
-0.79% |
-0.41% |
1.21% |
0.95% |
| Average 17 days |
-0.17% |
0.03% |
0.22% |
-0.04% |
| Change(1st day till 17th day) |
-3.28% |
-0.54% |
4.17% |
-2.17% |
| Pre Budget – Market Performance
(Expectation )
(1st to 8th day) |
Market was neutral |
Market was down |
Market was
up |
Market was
Neutral |
| Post Budget-Market performance
(Reaction)
(9th to 17th day) |
Market
went
down |
Market went
up |
Market
went
up |
Market
went
down |
Data for sensex pre budget 8 sessions and post budget 8 sessions as shown in the table provides following takeaways,
- Highest closing loss was 2.30% viz previous day closing in last four years data during budget period
- Highest closing Gain was 2.09% viz previous day closing in last four years data during budget period
- 1st day to 17th day keeping the budget session in centre; Gain was maximum 4.17% during 2014 and loss was maximum -3.28% in year 2012
- Market expectation and market reaction over 17 trading sessions as shown in table clearly show that market did factor in plus and minus viz pre and post but it was not huge number
What should be done in pre budget and post budget rally??
- Data indicates it is better to be patient nothing big is going to happen in pre or post budget sessions, if you think long-term (it is important event but over long-term)
- Data suggests stay away from intraday positions and sector specific calls as it is very difficult to time market especially during Budget days
- In case of trading don’t get exposed to single sector, have diversified calls
- Even after budget declaration, you can buy from the market. The market is not going to close immediately after.
- Even if looking to invest in the hope that budget will be good, go and buy Nifty or Nifty ETF to play safe.
Although, there is a risk reward relationship, it is better to keep away from short-term greed for gains and if at all trade be initiated, it should be under the guidance of your expert, who can guide you for the long-term. As Trading / calls / investment decisions will be sole responsibility of readers, readers are advised to consult their expert before taking any action / decision.
While this article may seem dated, it does not in any way diminish the importance even at this point in time.The article has been written by D. Muthukrishnan (Muthu) and can be found on his blog
StockArchitect 