Upstox Originals
Budget buzz: Analyzing financial market reactions
.png)
3 min read | Updated on July 22, 2024, 18:27 IST
SUMMARY
The budget sets policies and strategic direction of the government’s intent and direction of spends. It has wide wide-ranging impact - from the overall economy to the daily lives of citizens and from our point of view - on the financial markets. We analyse the impact of the budget on the markets and returns generated over the past 14 budgets.
Market reaction post one week of the budget is majorly positive
The Union budget is an encompassing policy document. It sets the tone for overall spending, capital expenditure, taxation, and initiatives for multiple sectors. As such, they tend to create a lot of expectations and excitement among investors.
In the table below we show the Sensex’s movement on the day of the budget and some key policy decisions made.
Here’s how markets performed during the last 5 budgets:
| Year | % Sensex Returns on Budget Day | Key Highlights |
|---|---|---|
| 2019 | -1.1 | No changes in income tax slabs, but a surcharge was introduced for individuals earning over ₹2 crore annually. |
| 2020 | -2.5 | Introduction of the new income tax regime and abolition of dividend distribution tax. |
| 2021 | 4.7 | Increased spending without significant changes in tax rates. |
| 2022 | 1.4 | No changes in income tax; long-term vision impressed markets. |
| 2023 | -0.3 | Increased exemption limit to ₹7 lakh under the new tax regime, cut in surcharge for high-income individuals 33% rise in capital expenditure. |
| 2024 (interim) | 0.1 | Roadmap for Viksit Bharat 2047 (developed India), focusing on four pillars: the poor, women, youth, and farmers with a sectoral focus on green energy, manufacturing, tourism, and infrastructure. |
| Average | 0.4 |
Source: PIB, NSE
We take it a step forward and analyse the movement in the markets on the budget day and a week post the budget. We note that on the day of the budget, markets closed positively 7 out of 14 times, effectively a 50% probability.
Admittedly, not very exciting.
On a more encouraging note, more than 70% of the time, a week post the budgets, markets tend to have positive returns.
| Type | Date | Budget day returns | Returns - 1 week post-budget |
|---|---|---|---|
| Union Budget | 28-02-2013 | -2.1 | 2.6 |
| Interim Budget | 17-02-2014 | 0.4 | 2.5 |
| Union Budget | 10-07-2014 | -0.2 | 0.7 |
| Union Budget | 28-02-2015 | 0.7 | -1.0 |
| Union Budget | 29-02-2016 | 0.6 | 6.5 |
| Union Budget | 01-02-2017 | 1.8 | 2.4 |
| Union Budget | 01-02-2018 | -0.2 | -1.8 |
| Interim Budget | 01-02-2019 | 0.6 | 1.0 |
| Union Budget | 05-07-2019 | -1.1 | -3.3 |
| Union Budget | 01-02-2020 | -2.5 | 0.6 |
| Union Budget | 01-02-2021 | 4.7 | 10.9 |
| Union Budget | 01-02-2022 | 1.4 | -0.4 |
| Union Budget | 01-02-2023 | -0.3 | 1.4 |
| Interim Budget | 01-02-2024 | -0.1 | 0.1 |
| 5-Yr Average | 0.4 | 1.5 | |
| 10-Yr Average | 0.3 | 1.6 |
Source: NSE, BSE
Implication
Investors and traders should note that markets generally remain very volatile and react to multiple announcements during the budget, so they should hedge their positions.
For investors, the budget can provide structural themes where the government will focus in the future and can invest in those themes and related stocks.
About The Author
Next Story
