D Day - Mar 16, 2012

The Stock market has put up a disappointing show in a month after the Budget announcement, eight times in the past 11 years, but analysts are opined that this time the government's move on policy reforms may provide a positive surprise. The markets are usually flat in the month ahead of the Budget and, in two out of three years, fall in the month following it. As analysis of the market performance one month after the Budget month, market, has been in positive territory on just three occasions. This time one more factor has been discounted and that is a chance of reform oriented Budget. let's see the argument. After UP election, Congress is looking vulnerable at center, so it may try again to present one more goody goody budget which may not reform oriented. Chances of mid term election may also keep reformative budget at a distance. After rail budget yesterday, Mamata Benerjee has also signaled not very long to stay with congress at center, however SP has announced will support center to avoid any mid term election.

the Sensex had dropped nearly seven per cent a month after the announcement of the Budget on February 29 to 16,300 points from 17,579 points on the Budget day. 

Similarly, the years when the market saw a decline a month after the Budget announcement were, 2007( down 0.4 per cent), 2005 (three per cent), 2003 (five per cent), 2002 (2.6 per cent), 2000 (7.5 per cent).  

In 2001, the index had plunged the highest by 11.4 per cent a month after the Budget announcement, the data showed.

The benchmark index had actually surged after budget announcement in 1999, 2004 and 2006. The index had gained as much as eight per cent in 1999, 7.3 per cent in 2004 and 6.9 per cent in 2006, the data showed.

In 2006, the Sensex crossed the 11,000 level a month after the financial document was tabled in Parliament from around 10,000 levels on the Budget day. While, in 2004 the index had crossed the 5,000-mark from around 4,800 levels prior to the event, the analysis revealed.

This time also we are near to very crucial levels in Nifty and Sensex that is 5500 and 18000.

According to Desai, history does not favour the market in the following three-four weeks after the Union Budget. Not just that, in the past 15 years, even in years when the Sensex gave positive returns in a one-month period post-Budget (1997, 1999, 2004, 2006, 2009, 2010 and 2011), there does not seem to be a great correlation between market performance and a market-friendly Budget, Desai said.

The Sensex has fallen between three per cent and 13 per cent on four occasions — 2005, 2007, 2008 and 2009 — during the one-month period post-Budget under the UPA regime. On the other hand, the 30-stock index has gained between one per cent and nine per cent five times — 2004, 2006, 2009, 2010 and 2011.

“Before the Budget, traders take positions in out of money options, rather than buying in cash market and futures. That is why we see a flattish market,” said Alex Mathews, head of technical and derivatives research at Geojit BNP Paribas Financial Services. “After the Budget, market usually rallies if traders and investors like the announcements.”

On an average, Sensex lost 2.3% one month after budget day since 1991 or 16 out of 20 times the index post negative. But could it be different this time after Mar 16?