Ahead of Union Budget announcement this year- which is likely to be presented by Finance Minister Nirmala Sitharaman this month- a study of market behaviour shows that investors have reduced their exposure one week before the budget announcement and re-entered one week after the Budget day. The study has observed the stock market since 2000, Capitalmind said in a report as per Economic Times.

A bird flies past a screen displaying the Sensex results on the facade of the Bombay Stock Exchange (BSE) building in Mumbai.(Reuters)

It said, “Market behaviour one week before and one week after Budgets are interesting mirror-images of each other as investors seem to reduce exposure due to uncertainty up to Budget day, negative 63% of the time, followed by re-entering once the uncertainty recedes after the event, positive 62% of the time.”

Capitalmind’s Anoop Vijaykumar said, “What our study implies is that while there tends to be significant volatility leading up to and immediately after the budget brd on expectations, the longer term is driven by the underlying fundamentals of corporate earnings growth. Long-term investors should avoid making significant equity allocation decisions brd on expectations or announcements made in the Budget.”

The study also noted that Union Budgets are poor predictions of annual returns.

“In the 2003 Union Budget, the NDA government prioritised reducing the deficit by introducing new taxes, including state-level VAT and service tax. The CNX500, the broad market index of the top 500 companies in India, ended the day up 0.5%. A month later, the index was down 6%. A year later, the market had doubled,” he said.

Best return on Budget day was observed at 4.1% on 1st February 2021 and the worst return was recorded at -5.4% on 6th July 2009, the report noted. 

 

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