There is much optimism built into the upcoming budget and the finance ministry is tasked with the responsibility to deliver for the market and economy to achieve India’s ambitious goal to become a $5 Trillion dollar economy by 2025. The major focus of the budget has to be on economic revival amidst the slowdown as demand-side stimulus would be essential at the same time the delicate fiscal position has to be maintained in balance. This year’s budget will focus on personal taxation, infrastructure spending, improving credit and alleviation of rural stress. The government will have to spur demand because of which there is a large expectation built-in that some relief will arrive in terms of a personal income tax cut which can boost consumption and related sectors in the near term. The midcap index has rallied 8% in the recent past and the NIFTY near its high; the market is not only pricing in an income tax but also factoring some adjustments in capital gains tax, which honestly has not contributed to the government’s coffers in a big way. Thirdly, there are expectations around some reduction in dividend distribution tax which should help IT companies.
How we have fared in various Budgets
In order to further understand the nuances of budget movements, we have drilled down and analyzed how
The market has behaved pre and post-budget. We have analyzed the first swing immediately before and after the budget. We have used the nearest price action (one swing) preceding the budget and one swing post the event. Typically such swings have a time element of one to two weeks before and after the event.
The below graphic shows the first swing before and after the budget, we have witnessed a total of 17 budgets in the past 15 years and 11/17 times we have seen a positive swing pre-budget while 10/17 time we saw a positive swing post-budget. On 7 different occasions, the market had fallen post the budget giving an average downward move of -8%. On six different occasions, the market has given upswings both before and after the budget and the market has fallen by two consecutive pre and post-budget downswings only once so far.
There were six different occasions when the market had an upswing both before and after the budget!
And only one occasion when the market had downswings both before and after the budget
The most intriguing factor is the in the past few years we are seeing an alternating trend in the budget where a downswing before the budget is followed by an upswing and vice versa.
We believe the government’s reform agenda will continue in this budget. Although the market has discounted many of the positives we still believe there is enough elbow room for the market to move ahead as we have presented in the below table where quantitatively we should be moving higher post the budget considering we are actually seeing a downswing pre-budget.
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