Investors are anticipating limited upside following the Union Budget on July 23 with historical trends suggesting a low-key post-budget upswing. Analysis of data over the past 30 years indicate that the Sensex has shown positive returns around the Budget only in 2006 and 2017.
Market Expectations Post-Union Budget 2024
Conversely, markets tended to decline two out of three times in the 30 days following the Budget, especially when there was a preceding rise in the market. According to Morgan Stanley, if current performance holds until Budget day, a correction afterward is likely.
Market Volatility and Fiscal Priorities
Since 2000, Budget days have witnessed notable fluctuations in market returns, ranging from a peak of 4.1% in 2021 to a trough of -5.4% in 2009, underscoring the market’s volatility during these events. As Finance Minister Nirmala Sitharaman prepares to present the upcoming Budget, expectations are focused on key priorities.
What’s on Investor and Analyst Focus?
These include reducing the fiscal deficit, promoting manufacturing’s contribution to GDP through fiscal incentives and infrastructure development, bolstering agriculture, fostering greater female workforce participation, and enhancing social infrastructure to alleviate poverty.
Investors and analysts alike are closely watching for signals of fiscal discipline and targeted economic stimulus measures that align with these priorities. The Budget’s announcements are anticipated to influence market sentiment and investment strategies, particularly regarding sectors expected to benefit from government initiatives aimed at economic growth and social development.
What are the Challenges and Caution lying ahead?
While some market observers speculate on potential rural consumption boosts via tax cuts and redistribution, Morgan Stanley suggests potential disappointment in these areas due to expected minimal tax cuts and unlikely redistribution efforts, which contradict current policy directions. Instead, emphasis is likely to remain on infrastructure development and social housing projects.
Investors are cautioned about potential market reactions to fiscal deficit contraction, which could impact earnings outlooks negatively. Goldman analysts project the government aiming for a fiscal deficit below 4.5% of GDP by FY26, aligning with broader fiscal consolidation goals.