How stock markets reacted to the Budget

By Jimeet Modi, CEO, SAMCO Securities

Past history suggests that 70% of the time budgets are in line with the underlying market moods, however during other 30% of time markets have turned due to budget events. In reality such turns are caused due the inherent overbought or oversold conditions of the market itself, nonetheless it is portrayed in media that budgets have turned the markets.

For example in 2016 there was nothing so great about the budget, but still the indices started to rise smartly because they were in deep oversold conditions.  Similarly in 2015 budget, there was nothing really bad about the first budget of the Modi government, but still the markets made a top and started to roll down because inherently it was heavily overbought mesmerized in too much optimism.

There is currently fear in the market that benefits of long term gains will be reduced or taken away and therefore the markets would fall. But if we check history, it is surprising to note that,  markets had fallen 10% when long term gains tax was abolished, thus the current argument fall flat. Market’s budget reaction is a function of underlying trend, if the trend is bullish, the budget will be interpreted in a bullish perspective and vice versa for bearish phase.  Thus what really matters is to identify and follow the underlying mood of the market and ride the wave, rest everything else will fall in line.  

The sectors to look out for investments would be in the space of Housing Finance companies, Cigarettes, Two wheelers, PSU Banks, Infra and Cement space. These sectors are likely to outperform general markets in the short to medium term. Currently the market is floating in huge liquidity and sentiments too are bullish and the same is expected to continue post budgets albeit with some regular profit booking. Investors should sit tight with their portfolios and traders should buy every dips.      

The opinions expressed within this article are the personal opinions of the author.