Budget 2024: Market Moves Around Budget Day

4 Jul 2024 , 09:05 AM

According to a market analysis, investors cut their exposure one week before the budget announcement and then re-entered one week later.

Ahead of this year’s Union Budget declaration, which is expected to be given by Finance Minister Nirmala Sitharaman this month, a study of market behaviour suggests that investors lowered their exposure one week before the budget release and re-entered one week after. According to an Economic Times story, Capitalmind has been studying the stock market since 2000.

The report stated: “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.”

Anoop Vijaykumar of Capitalmind stated, “What our study suggests is that while there tends to be tremendous volatility leading up to and shortly following the budget brd on expectations, the longer term is determined by the underlying fundamentals of corporate earnings growth. Long-term investors should avoid making large equity allocation decisions based on budgetary assumptions or announcements.

The study also found that Union budgets are poor predictors of annual returns.

“In the 2003 Union Budget, the NDA government prioritised deficit reduction by introducing new taxes, such as state-level VAT and service tax.” The CNX500, a broad market index of India’s top 500 firms, finished the day up 0.5%. A month later, the index had dropped 6%. “A year later, the market had doubled,” he explained.

The best return on Budget Day was 4.1% on February 1, 2021, while the worst was -5.4% on July 6, 2009, according to the research.

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