Indian markets have not sustained pre-Budget rallies in the past

Market expectations from the Union Budget hold a key in determining how stocks could fare post the budget, an analysis by Morgan Stanley shows.
 
The study says whenever the market has high expectations—measured pre-budget performance of benchmark indices—the post-budget returns often disappoint. When expectations are low, the markets tend to do well post the budget.
 
In the 27 years, whenever the market has gone up before the budget, it has declined 3 out of 4 times a month after the announcement. Similarly, whenever the Indian market has outperformed the emerging markets (EMs) before the budget, it has underperformed in three out of four years a month after the budget, says the brokerage. On the contrary, there is a 50 per cent probability that the Indian markets will outperform the EMs whenever it underperforms EMs 30 days in the run up to the budget.
 

So how are the markets poised this time around?
 
“This year, India is down 2 per cent since the start of June up to the week before the budget and it is underperforming EM over the past three weeks (again a week ahead of the budget). This implies a slightly greater chance for absolute upside 30 days after the budget, like we saw in 2016, 2018, and 2019,” says Morgan Stanley.