Be it an interim one or the actual Union Budget, equity markets witness their share of volatility in the run-up as well as post the big event.
A look at the domestic market performance atleast a week prior to the Budget presentation over the last 5-6 years showed that caution and a certain level of apprehension prevailed among investors.

In the last six instances, the benchmark Sensex has given negative returns twice during the week prior to the Budget presentation and flat returns on two instances, the performance analysed by ETMarkets showed.

The worst fall that the Sensex saw during the last six years was in 2020, when the benchmark corrected close to 5% prior to the Budget.

Similarly, if one looks at the performance of the index post the Budget announcement, it has been better than the pre-announcement period. In February 2020, while equities fell sharply in the run-up to the Budget, they recouped nearly all of the losses in the week after the announcements.

Similarly, in February 2021, Sensex net gained close to 6% during the week after the Budget.

2024 Budget

Being an election-bound year, the budget that will be presented on February 1 by Finance Minister Nirmala Sitharaman will be an interim one or as it’s called a “vote of account”.

A successful victory for the BJP in the state assembly elections last year gave assurance to investors about political and policy continuity.

A vote-of-account is basically an approval for the necessary expenditure until a new government is formed after the general election.

Most experts see the upcoming interim budget focussing on the fiscal roadmap, capital investment-led expansion, and also providing a roadmap to bolster rural growth.

Undoubtedly, some degree of populist measures is also anticipated in the budget, with an increased emphasis on delivering benefits to the masses in the run-up to the general elections.

“The Interim Budget will have to balance the need for continued capex push, fiscal consolidation and addressing rural weakness in an election year,” Nuvama Institutional Equities said.

Axis Securities expects the government capex to be further increased by 10-15% for FY25. For FY24, the government had pegged a capex target of Rs 10 lakh crore.

Given that tighter liquidity conditions and higher inflation affected the purchasing power of the masses, experts expect the budget to provide relief to those at the bottom of the pyramid.

How will Sensex move this time?

In recent years, the impact of the budget on the equity market has reduced considerably given that the incumbent government was undertaking most of the reforms outside the purview of the Budget.

The domestic macroeconomic landscape over the last few months has improved considerably and bolstered the narrative that India is and will be one of the fastest growing economies in the world in the near future.

Given that most things are in place, experts don’t expect any unpleasant surprises from the government in the budget. Some even look at it as a non-event this time.

“I personally believe that the Budget which is going to be presented in February, is going to be mostly a non-event because it’s going to be a vote on account, and we do not expect any major policy changes from the government,” said Amit Goel, co-founder and chief global strategist at Pace360.

Sharing a somewhat similar thought, Dhiraj Relli, MD and CEO of HDFC Securities, said, “The capital markets may get little excited by the vote on account, but may prefer to wait for the general election outcome and the regular Budget before getting very bullish.”

(Data inputs from Ritesh Presswala)

(You can now subscribe to our ETMarkets WhatsApp channel)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


Source link