Mumbai: On Wednesday, the Bombay Stock Exchange’s benchmark index, the Sensex, rose 19.80 points, or 0.11%, to close at 17,825.99, a third straight day of gains that analysts say is the traditional pre-Budget rally.
But a Mint analysis of the movement of the stock market in the run-up to the budget and its aftermath does not show any definite trend. Between 2001 and 2007, there were eight annual budgets, including a vote on account in February 2004. Out of eight budget days, the Sensex fell on four occasions and rose on four. However, in seven trading days in the run-up to the budget, in five out of eight occasions, the Sensex lost ground. The trend is reversed in seven trading days after the budget, with the Sensex gaining ground on five occasions.
THE BUDGET AND THE STOCK MARKET (Graphic)
WHOSE BUDGET IS IT ANYWAY (Graphic)
In 2007, the Sensex lost more than 10% in the seven-day run-up to the Budget, largely because of a global sell-off in equity markets and the bearishness that extended into the first week of March, even though the fall was largely arrested. In the seven trading days after last year’s Budget, the Sensex lost 0.41%.
However, there is no clear and common pre- and post- budget market trend. For instance, in 2002 and 2004, the market fell before the budget, only to rise later.
In February 2001, after losing 2.38% ahead of the budget presented by Yashwant Sinha of the Bharatiya Janata Party, the index lost 11.28% in the seven days after the budget because of a scam involving stock broker Ketan Parekh.
In 2003, the Sensex lost 0.56% ahead of the budget and another 3.92% in the week following it.
In 2005 and 2006, the Sensex gained 1.89% and 3.9%, respectively, ahead of the budget and went on to gain 2.67% and 1.96%, again in seven trading sessions after the budget. A similar pattern was seen ahead of and after the vote on account presented by Jaswant Singh of the National Democratic Alliance government.
Even when one looks at a slightly broader time frame, a fortnight before and after the Budget, no definite trend emerges. On four out of eight occasions, the market moved in the same direction before and after the budget. Even these four occasions are equally divided—in 2001 and 2003, the Sensex fell both before and after the budget, and in June 2004 and 2006, it rose both ahead of and after the budget.
The backdrop for this year’s Budget has been set by “distress in agriculture sector coupled with slowdown in industrial and services sectors”, according to Sinha.
Ahead of the general election in 2009, market participants fear a populist move by P. Chidambaram in the form of tax sops and an agricultural loan waiver, and if he indeed goes ahead with such proposals, they will have a bearing on the market.
Online share broker Sharekhan Ltd expects some relaxation in tax structure that would “benefit the lower- and middle-income population”. Another brokerage expects the Budget to visit housing sector taxes. Higher tax benefit on home loans may propel the housing demand in the economy, it said.
“A cut in personal income- tax may also lead to higher propensity to borrow and we might again see a pick-up in retail credit,” said Ravikant Bhat, an analyst at IDBI Capital Ltd, in his pre-Budget note.
(Ashwin Ramarathinam contributed to this story.)