Market's tempered expectations from budget are justified

The Union budget, the annual unveiling of India's fiscal roadmap, is always met with a flurry of anticipation.

- Abhinaba Saha

The Union budget, the annual unveiling of India's fiscal roadmap, is always met with a flurry of anticipation. Yet, despite widespread excitement, markets approach the event with tempered expectations. That caution is often justified.

The median returns for all but two sectors have been negative in the month preceding the budget, revealed a Mint analysis of 17 key sectoral indices on the BSE over the past 20 budgets (including interim budgets in election years).

Real estate suffered the most, with a near 6% median decline during the period. The oil and gas, and power sectors fell 4.3% each. And the pre-budget market downturn is frequently reflected in wider market performance.

On average, sectoral indices fell in about 65% of the 20 budgets announced since 2009 in the month preceding the event. Even the benchmark Sensex rose ahead of the budget in only five of those instances.

The data suggests that market participants are hesitant to price in sector-specific expectations. The absence of consistent positive returns in any particular sector reinforces this view, indicating that these expectations often do not align with outcomes.

The post-budget impact on sector performance is also fleeting, according to experts, as it seldom lasts more than a week. So attributing changes in sectoral returns in the following month exclusively to the budget would not be accurate.