Markets mostly rebound after pre-Budget corrections: SBI Securities

One- and three-month performance strong on three occasions when markets fell 3% or more ahead of the Budget

Domestic equity markets, which have seen a sharp correction ahead of the Union Budget, have historically staged a recovery in the weeks and months following the announcement — particularly when sentiment was weak going into the event, according to an analysis of the last 15 cycles by SBI Securities.

 

The benchmark indices are down 4 per cent in the past one month. Historical data suggests that such pre-Budget declines have often been followed by strong post-Budget rebounds.

 

Over the past 15 Budget cycles, the Sensex has corrected more than 3 per cent one month ahead of the Budget on three occasions — February 2014, February 2016 and February 2021 — while the Nifty saw similar declines in 2014 and 2016.

 

In all these instances, both indices delivered positive returns over one-week, one-month and three-month periods after the Budget. Data shows that in the week following the Budget, the Sensex closed higher in 11 out of 15 instances, with an average gain of 2.1 per cent, while losses, when they occurred, averaged 2.1 per cent. Over a three-month period, the Sensex posted positive returns nine times, delivering an average gain of 6.77 per cent.

 

The Nifty has shown a similar pattern, closing higher in 12 of the last 15 post-Budget weeks with an average gain of 2.04 per cent. Over a three-month horizon, it delivered positive returns in nine instances, averaging gains of 7.4 per cent.

 

Broader markets have historically outperformed benchmarks immediately after the Budget. The midcap and smallcap indices closed higher in 11 out of 15 post-Budget weeks, posting average gains of around 3.1-3.3 per cent.

 

However, recovery trends diverge over longer periods. The midcap index has delivered positive returns in 10 out of 15 instances over a three-month period, with an average gain of 8.67 per cent, though losses, when they occurred, were relatively steep.

 

Smallcaps have been more volatile. While the index delivered strong gains when positive — averaging 14.54 per cent over three months — it also recorded negative returns more frequently, underscoring inconsistent recovery patterns.

 

So far in January, the midcap index is down 5 per cent, while smallcaps have fallen over 7 per cent. Historically, midcaps tend to recover gradually over a three-month period, while smallcap recoveries have been uneven and often delayed beyond three months.

 

Sectoral trends indicate that pharma and financial services have been consistent post-Budget outperformers. Pharma stocks closed higher in 14 of the last 15 post-Budget weeks, with an average gain of 3.2 per cent, and also delivered steady three-month returns with limited downside.

 

Financial services stocks have also shown strength, closing higher in 11 post-Budget weeks with an average gain of 2.93 per cent and posting average three-month gains of 10.85 per cent.

 

In contrast, auto and realty sectors have underperformed historically. Auto stocks ended the month after the Budget in the red on nine out of 15 occasions, while realty stocks posted negative returns in 10 instances, with losses outweighing gains over both one-month and three-month periods.

 

Market volatility, as measured by India VIX, has consistently declined on Budget day across all 15 instances, with an average fall of 9.3 per cent. In the week following the Budget, volatility eased in 11 instances, suggesting a post-event calming of market nerves.

 

                            Pharma, financials tend to outperform post the budget

 

Average returns (%)	1W Prior	1M Prior	Previous day	Budget day	Nexy day	1W After	1M After	3M After
Sensex	-0.47	-0.45	0.36	0.35	0.24	1	-0.67	1.95
Nifty	-0.47	-0.53	0.01	0.29	0.22	1.1	-0.57	2.25
Bank Nifty	-1.59	-0.4	0.4	0.76	0.31	1.6	0.04	3.98
Midcap	-0.91	-0.93	-0.04	0.04	-0.02	1.55	-0.62	3.19
Smallcap	-1.77	-0.98	-0.24	-0.01	-0.14	1.63	-1.66	2.1
Pharma	-0.94	-1.3	0.21	-0.02	0.4	2.97	0.02	4.33
Financials	-1.26	-0.46	0.56	0.74	0.18	1.29	-0.17	2.99

Source: SBI Securities