Shares bought on January 31 cannot be sold on the Budget day. Here's why

NSE, BSE to conduct a special trading session on February 1; settlement of trades on February 4

Finance Minister Nirmala Sitharaman is set to present the Union Budget for FY21 on February 1 amid expectations of relaxation in Long Term Capital Gains tax and Dividend Distribution Tax. Market regulator, Securities and Exchange Board of India (Sebi), has allowed the National Stock Exchange (NSE) and BSE to conduct regular trading on Saturday, February 1.

According to the notice issued by the exchanges, trading will begin from 9:15 am, and will last till 3:30 pm. Pre-opening orders will be placed between 9:00 and 9:08 am, and will be matched from 9:08 am and 9:15 am. Earlier in 2015, markets were open for trade on Saturday, February 28, when then Finance Minister Arun Jaitley presented the Budget.

How will the proposals impact your portfolio? Catch all the action in Business Standard's MARKET BLOG

Investors, however, looking to transact on Budget day must keep a few things in mind while placing their orders. 

According to Tradebulls Securities - a leading domestic brokerage, orders placed on Friday, January 31 and on February 1, 2020 will be settled on February 4. Also, shares bought on Friday, January 31 cannot be sold on Saturday (Budget day). This is because trades executed on Friday, January 31 and on February 01 will be settled on February 4.

Click here for the detailed trading timings

“Budget should be a non-event this time around. That said, the exchanges do conduct special sessions on such big events – like Muhurat trading on Diwali to ring in the new Samvat – to give investors an opportunity to buy / sell stocks. The settlement is usually done on the following day in order to curb volatility,” explains A K Prabhakar, head of research at IDBI Capital.

Normally, under a spot order, a T+2 settlement cycle is followed, where trades are settled on the second day from the day of placement of order. That is to say, any order placed on Monday is settled on Wednesday, and so on. For arriving at the settlement day, all intervening holidays, which include bank holidays, exchange holidays, Saturdays and Sundays, are excluded.

Budget wishlist

Finance Minister is set to present the Union Budget for financial year 2020-21 (FY21) amid expectations of relaxation in Long Term Capital Gains (LTCG) tax and Dividend Distribution Tax (DDT). Credible fiscal numbers and gradual consolidation, rising revenue via strategic divestment and asset monetisation are some of the other measures that the markets would watch out for.

 

“We expect the Budget to contain some pro-market/economy measures. Tax cuts (lower income categories, long-term capital gains), real estate incentives and credit support for small businesses are potential candidates," wrote Sanjay Mookim, India Equity Strategist at BofAML in a recent report.

Since July 5, when the Union Budget for FY 2019-20 was presented, the benchmark S&P BSE Sensex has gained around 3.1 per cent, while the Nifty50 has gained 1.5 per cent.