History Says So! Stock Market Has Been Bitter To Budgets; Sensex Reacted In Red On 13 Budgets Out Of Last 18

Although Budget 2024 has been broadly in line with the street estimates, it looks like the Sensex and Nifty 50 are not impressed. On July 24, post-Budget trading session, Sensex fell by nearly 342 points, and Nifty 50 dipped by about 106 points. Both benchmarks also ended in red on Budget Day. In fact, Sensex and Nifty are in red for a fourth consecutive day now. Historic data reveals that Indian stock market has reacted in red for 13 budgets out of the last 18 budgets.

Data from 2009 to date, showed that it has been difficult for finance ministers to stir a bull run after Budget announcements. A total of 18 budgets have been announced since the 2009-10 fiscal year. Of the total, there were only five occasions where Sensex responded in green after Budget changes. At the same time, the bearish record is at a staggering 13 budgets.

On July 23, Sensex ended at 80,429.04 down by 0.09%, and Nifty 50 edged lower by 0.12% to 24,479.05. This reaction is on Finance Minister Nirmala Sitharaman's 2024 Budget announcement.

Sitharaman who has announced seven budgets since taking charge of the Finance Ministry in 2019, witnessed a lower trend by Sensex on five of them. Out of her seven budgets so far, Sensex reacted in red for three consecutive years in the 2024-25 final budget, 2024-25 interim budget and 2023-24 budget in the range of 0.1-0.5%.

The steepest fall in Sensex was 2.5% in Sitharaman's 2020-21 budget on February 1, 2020, ahead of the Covid-19 pandemic. Moreover, the second sharp drop was of 1.2% in her July 2019 budget which came after PM Modi's second win in the Lok Sabha election that year.

The most and sharpest surge by Sensex on Budget Day is also during Sitharaman. In the 2022-23 Budget, Sensex posted gains of 4.3%, while the performance was marginally up in 2023-24.

Even, former Finance Minister Arun Jaitley has announced up to 5 budgets in his tenure under Modi-government. During his last budget on February 1, 2018, Sensex was down by 0.5%. Out of the five budgets of Jaitley, Sensex trended down on four of them. Sensex rose by 1.7% during Jaitley's February 2017 budget.

However, Pranab Mukherjee who held charge of FinMin under the Manmohan Singh government, witnessed the steepest fall by Sensex to the tune of 6.14% in his July 2009 budget announcement. However, the bearish reaction by Sensex has been only on three budgets out of Pranab's five budget announcements.

What is the outlook for the stock market after Budget 2024?

According to Subhash Chandra Aggarwal (Chairman and Managing Director, SMC Global Securities Limited), the FY 25 budget outlines a path of continuity and future-oriented strategies aimed at bolstering India's growth momentum. Emphasizing employment, skills development, inclusivity, social justice, infrastructure, innovation, and progressive reforms, this budget not only tackled immediate challenges but also laid the groundwork for an economy driven by knowledge and growth.

However, he also said, the announcement of revisions to the capital gains tax regime triggered significant market volatility.

Explaining further, Agarwal said, long-term capital gains tax has been raised to 12.5% from 10%, and short-term gains tax to 20% from 15%. Additionally, income from share buybacks will now be taxed directly to the recipient. The holding period for capital gains tax has been standardized: assets listed for more than a year are considered long-term, while unlisted assets require a holding period of over two years.

Also, he added that the STT on Futures & Options contracts has been raised significantly to 0.02% from 0.01%. Despite these tax adjustments, which underscore the budget's forward-looking approach to economic strengthening, the growth trajectory of the Indian economy remains robust.

Despite the latest fall, what is the outlook in the short term? Aggarwal said, "Market confidence remains resilient, and Indian markets are anticipated to achieve new highs moving forward."