SPONSORED BY

Auto Segment
Mutual Fund Segment
My Budget
Expert Speak
In Association With
 
Business Standard

Market seldom rallies before Budget

Related News

Under rule, Sensex has given flat or negative returns 7 out of 9 times in pre-month

Stock markets seem to prefer stable governments. But they have seldom rallied or fallen sharply before the government presents its most important document of the year – the Union Budget.

In the last eight years, when the Congress-led United Progressive Alliance (UPA) was in power, the Bombay Stock Exchange Sensitive Index or the Sensex fell or remained stagnant seven times.

In sharp contrast, when the Congress-led United Progressive Alliance (UPA) came to power for the second time in May 2009, the stock market gave it a warm welcome.

Both the Sensex and Nifty rallied sharply and hit upper circuits in the first few minutes of trading. After the Nifty rose a whopping 20.75 per cent, trading had to be suspended for the day.

Business Standard analysed the performance of the Sensex for the one-month period before the Budget day since 2004, when the UPA came to power, to get the sense of market movements. On three occasions — 2004, 2005 and 2008 — the Sensex gained less than one per cent. In case of four other times — 2007, 2009, 2010 and 2011 — the 30-stock index delivered negative returns. There were two Budget presentations in 2009 — an interim Budget in February 2009 prior to the general elections, and the regular Budget in July 2009, post-elections.

Things are not looking any different this time. At Friday’s close of 17,503.24, the Sensex has fallen 699 points, or 3.84 per cent, since its close on February 15. Finance Minister will present the Budget for financial year 2012-13 on March 16.

“The markets are usually flat in the month ahead of the Budget and, in two out of three years, fall in the month following it,” Ridham Desai, strategist and head of India equity research, Morgan Stanley, said in a strategy note to clients. He studied Sensex movements one month before and after the for the last 15 years.

According to Desai, history does not favour the market in the following three-four weeks after the Union Budget. Not just that, in the past 15 years, even in years when the Sensex gave positive returns in a one-month period post-Budget (1997, 1999, 2004, 2006, 2009, 2010 and 2011), there does not seem to be a great correlation between market performance and a market-friendly Budget, Desai said.

The Sensex has fallen between three per cent and 13 per cent on four occasions — 2005, 2007, 2008 and 2009 — during the one-month period post-Budget under the UPA regime. On the other hand, the 30-stock index has gained between one per cent and nine per cent five times — 2004, 2006, 2009, 2010 and 2011.

“Before the Budget, traders take positions in out of money options, rather than buying in cash market and futures. That is why we see a flattish market,” said Alex Mathews, head of technical and derivatives research at Geojit BNP Paribas Financial Services. “After the Budget, market usually rallies if traders and investors like the announcements.”

Read more on:   
|
|
|
|
|

Read More

IABF to close $120-mn fund this year

India Agri Business Fund (IABF), a $120- million equity fund instituted in 2008 for which Rabo Equity Advisors is an investment advisor, is planning ...

Recommended for you

Quick Links

Market News

Markets end higher on see-saw Budget day trade

Private banks rally, ITC crashes as Sensex ends 0.5% up

Gold monetisation may curb imports

Sovereign gold bonds and India-made gold coins with Ashok Chakra embossed on those also announced

FMC to be merged with Sebi

The merger of the commodities and equtiy markets regulators had been hinted at in the Economic Survey

Domestic steel producers welcome import duty increase

Jaitley raised import duty of long as well as flat steel products from five per cent and 7.5%, respectively, to 10%

First BDay gain in four years

The Sensex gained 141.38 points, or 0.48% over previous close, to 29,361.5. Shares of banking, health care and automobile stocks gained

 

Back to Top