Last year in March, the Sensex saw a fall like never before and over the last few months, the market has seen the bull run like never before. The Sensex has almost doubled from its last year's March low and has crossed 50,000 recently.
The budget is around the corner and the market is eagerly waiting for some good announcements from the Finance Minister, Nirmala Sitharaman. In this article, we are going to discuss how the budget has affected the market in the past and what are some key industries to focus on before the budget is out.
The current scenario
India has seen negative GDP numbers reported in the last 2 quarters and even the GDP growth percentage will be negative (0 to -2%). The fiscal deficit for FY21 stands at Rs 14.5 lakh crore. Given all these uncomfortable numbers, the upcoming budget is perhaps the most important of recent times. The government has to infuse liquidity into the system and create demand so that these numbers can improve.
Market before and after the budget
We cannot predict how the market is going to behave this time around before and after the announcement of the budget but taking a look at the history certainly gives us an idea of how to go about your investments in pre and post-budget week.
- 5 days before the budget - Between 2010 and 2019, the Sensex has given negative returns 7 out of 10 times
- On Budget day - During the same period, on budget day, the market closed in red 6 times on the budget day.
- 5 days after the budget - During the same period, 5 days after the budget, the Sensex has given negative results only in 4 instances.
The budget is a trigger and the market can go on either side post-budget. The market has rewarded a good budget in 2016 with a 7.2% rally post budget (5 days) while it has punished bad budgets like in 2018 where Sensex corrected more than 4% in 5 days post-budget.
To sum up we can say, the indices perform poorly in the pre-Budget week while they perform better in post-budget weeks.
The expectation from the budget
There is a lot a common man, as well as business owners, are expecting from the Finance Minister.
Taxes - Currently, an investor is taxed on Long Term Capital Gains (LTCG) at 10% on equity mutual funds and equity shares and also has to pay surcharge and cess on gains over and above Rs 1 lakh. The expectation from this year's budget is that either one of these needs to be removed. Secondly, the taxes on dividends will also be an area of focus - there is a strong chance for the dividends from debt funds to be made tax free.
Sectors in focus - Finance Minister Nirmala Sitharaman has already said in her interviews that this year's budget will see a massive public sector investment and expenditure push, including in infrastructure and health sectors. Along with these two sectors, the other sectors in focus could be - real estate, construction and railways. Below are what different sectors expecting from this budget:
Aviation - The aviation sector has been the most hit in 2020 because of Covid. The aviation sector is expecting near term fiscal support from the sector - a reduction in high taxes and levies.
Real Estate - The sector is expecting the government to expand its affordable housing scheme and provide more tax benefits to interested home buyers.
Automobile - This sector has seen a V-shaped recovery and now the sector expects the budget to come up with policies that will create more demand.
Defense - The government this year is likely to increase the budget for defense, the main reason being India's conflict with China last year.
Healthcare - The healthcare sector is also looking for reforms - higher budgetary allocation and reduction in taxes.
If you are looking to make a fresh entry in any stocks, the stocks from the above-mentioned sectors should be on your list.