Budget Day Market Movement History in India: How Does Market Perform on Budget Day?

Investors, traders, market analysts, and corporate leaders are keeping an eye on the stock market ahead of Finance Minister Nirmala Sitharaman's presentation of the Union Budget 2024 on 23rd July. This budget is a fiscal plan of the newly elected coalition government; it will lay down the economic roadmap for the country in the financial year 2024-25. 

There are expectations from the Union Budget 2024, like focus on infrastructure expenditure, modernisation of defence and railways, divestment of public sector undertakings, changes on capital gain tax, deductions for new tax regime, GST optimisation, encouraging policies for start-ups and more. The announcements by the finance minister on budget day could fulfil these expectations, but they could be against them. Either, they will affect the stock market. 

Here, we provide the history of the stock market on budget days in the last 12 years, which focuses on how government announcements have impacted the market on budget days in the previous decade. A dedicated section on analysis of some of the market experts is also there. This reading will help you to draw up a strategy for trading and investment on Budget days and make up your mind for the volatility that could shock you if you are not prepared for it. 

History of Market Movement on Budget days

Union Budget 2013

In 2013, the UPA government, led by Finance Minister P. Chidambaram, presented the budget on February 28. The budget proposed higher taxes for wealthy individuals and companies, introducing a 10% surcharge on those earning more than Rs 1 crore annually and on companies with revenues over Rs 10 crore. The market reacted negatively, with the Sensex dropping 1.52% or 291 points, ending below the 19,000 level. The market also disliked the higher revenue projections from divestment and spectrum sales, despite a reduction in the Securities Transaction Tax on mutual fund and equity futures transactions.

Union Budget 2014

In 2014, due to the election year, two budgets were presented. Finance Minister P. Chidambaram of the Manmohan Singh government presented the budget on February 17, which led to a positive response from the market. The BSE Sensex rose by 97.20 points to 20,464.06, and the Nifty 50 gained 24.95 points to 6,073.30. 

Later, Finance Minister Arun Jaitley of the newly elected government presented the budget on July 10. The budget increased investment and exemption limits for taxpayers and raised the FDI limit in defence and insurance sectors from 26% to 49%. The market saw a minor selloff, with the Sensex declining by 0.28% and the Nifty 50 dropping by 17.25 points.

Union Budget 2015

On February 28, 2015, Finance Minister Arun Jaitley presented a budget aimed at boosting investments while maintaining fiscal discipline, targeting a fiscal deficit of 3.9% for 2015-16. Key measures included a corporate tax cut to 25%, deferring GAAR, and efforts to boost rural income. The market responded positively, with the BSE Sensex rising 141.38 points to 29,361.50 and the NSE Nifty advancing 57 points to 8,901.80. However, the Nifty saw a 4.6% decline in the following month.

Union Budget 2016

On February 29, 2016, Finance Minister Arun Jaitley presented a budget focused on rural development, including a plan to double farmers' income in five years. Despite these measures, the market was unimpressed, with the Sensex losing 0.66%, closing just above the 23,000 mark.  No increase in service tax, no change in capital gains tax, increase in STT on options and PSU bank recapitalisation fund failed to enthuse markets. Jaitley stuck to the fiscal deficit target of 3.5% of GDP for fiscal 2016 -17.

Union Budget 2017

The budget presentation date moved to February 1 in 2017, and the separate Railway budget was merged with the Union budget. Finance Minister Arun Jaitley announced relief for middle-class taxpayers and a proposed fiscal deficit of 3%. It resulted in positive market reactions. Increased tax collection on account of demonetisation and reduction in the tenure of long-term capital gain tax from 3 years to 2 years were among the major moves that helped markets end on a positive note that day. The BSE Sensex finished at 28141.64, up 485.68 points. It gained 1.76% on the day, the highest gain on the budget day since 2010. The NSE Nifty 50 rose 155.10 points and closed at 8716.40 points.

Union Budget 2018

It was the last budget of Arun Jaityely as a Finance Minister. The budget had major proposals for MSMEs, employment generation and infrastructure. The government pegged the fiscal deficit at 3.3% of the GDP. Long term capital gains tax was introduced in the Union Budget 2018-2019. Market reacted cautiously, sentiment turned weak due to a proposal for higher dividend distribution tax on those earning more, and a proposal to increase Securities Transaction Tax on options and dividend tax on above Rs 10 lakh dividend receipts. Sensex ended marginally lower by 0.16% on that day, marking it as the eighth fall in the last 10 years of budget announcements. 

Union Budget 2019

In 2019, two budgets were presented. Finance Minister Piyush Goyal presented the Interim Budget on February 1, maintained existing tax slabs and announced benefits for low-income taxpayers and farmers. The Budget 2019 announcements such as increased Defence Budget for FY20 to Rs 3 lakh crore, income tax sops for nearly 30 million low-income taxpayers and 120 million marginal farmers, provided a major boost to sentiments. Agriculture and auto stocks also got a boost after favourable announcements made for farmers. The acting FM kept the fiscal deficit target at 3.4% of GDP. The market responded positively, with the Sensex rising 212 points to 36,469.43 and the Nifty 50 gaining 62.7 points to 10,893.65.

Later, Finance Minister Nirmala Sitharaman presented the budget on July 5. She left some of the major announcements made by the acting finance minister Piyush Goyal in the interim budget unchanged.  The market initially dropped by 980 points during the day but recovered slightly to close with a loss of 394.67 points. The Sensex ended down 0.99%, and the Nifty 50 fell by 135.60 points. On negative reaction, experts note that a few announcements were not cheered by the investors such as increasing income tax for HNIs, no mention of fiscal deficit, and a proposal to increase the public shareholding to 35%. 

Union Budget 2020

Finance Minister Nirmala Sitharaman presented her second budget on February 1, 2020, introducing new tax slabs and lower rates. There was no major boost for industry in the budget speech. Optional income tax cuts and no relief from LTCG painted the Dalal street with red colour as the market witnessed its biggest fall on February 1 since 2009, with the Sensex crashing 2.43%, closing just below 40,000 as investors lost around Rs 3.6 lakh crore on BSE.

Union Budget 2021

On February 1, 2021, Finance Minister Nirmala Sitharaman presented a budget to revive the pandemic-hit economy. Major announcements included a Development Financial Institution with Rs 20,000 crore capital, incentives for digital payments, Jal Jeevan Mission for universal water supply, More than one lakh crore for railway expenditure, Highest ever capital outlay of Rs 1,18,101 crore to roads and highways ministry, Tax holiday for startups extended till March 31, 2022, Voluntary vehicle scrapping policy, 

The market responded positively, with the BSE Sensex surging 2,314.84 points to 48,600.61 and the NSE Nifty 50 jumping 646.60 points to 14,281.20, marking the best budget day performance in the last 20 years.

Union Budget 2022

Finance Minister Nirmala Sitharaman's 2022 budget aimed to lay the foundation for economic growth post-pandemic. Key announcements included measures for 5G, digital currencies, and infrastructure development, agriculture, education, and more. The market reacted positively, with the Sensex rising 849.40 points to 58,862.57 and the Nifty 50 up 237 points to 17,576.85. Gains were seen in sectors like pharma, FMCG, metals, IT, and realty. 

With cuts on customs duties and incentivised exports, textile stocks jumped post the budget announcement. However, auto and oil, and gas stocks dropped. Due to the higher fiscal deficit,  bond yields surge of 15-20 bps, and treasury gains were negatively wedged for PSU banks. 

Union Budget 2023

On February 1, 2023, Finance Minister Nirmala Sitharaman presented a budget aimed at strong public finances and a robust financial sector. The market had mixed reactions, with the Sensex rising over 1,100 points during intraday trade but closing only 158.18 points higher at 59,708.08. In contrast, the Nifty 50, however, fell by 45.85 points to 17,616.30. 

Union Budget 2024

After announcements of Union Budget 2024, the Indian stock markets started to decline significantly as the government proposed to raise the tax on capital gains and on trading derivatives. The NSE Nifty 50 and S&P BSE Sensex dropped about 1% each. The Indian rupee also dropped to a record low against the US dollar to 83.69.

In Union Budget 2024, the Central government has slashed customs duties but also increased the capital gain taxes for the financial year 2024-25. Short-term gains on financial assets will now be taxed at 20%, compared with 15% earlier while long-term gains on all assets face a 12.5% tax, from 10% earlier. Exemption limit has been increased to Rs.1.25 lakh from Rs.1 lakh per year for long term capital gains. Financial Minister Nirmala Sitharaman said the standard deduction for salaried employees will be hiked to Rs.75,000, from Rs.50,000 under the new income tax regime and tax slabs of new tax regime have also been changed by the government for FY25. 

Market analysts said that the government's step to hike LTCG tax will discourage savings and investments. Gaurav Bora of Laksh Financial Solutions told The Indian Express, “Just when the stock market has been having a good run for a long time, the news dampened the spirits… It is an unnecessary move.”

Expert’s views on Budget Day Market Movement

Before you make any stock market moves on budget day, it’s wise to heed the insights and advice. Some expert opinions and studies could act as a co-pilot to make your journey less turbulent.  

A recent study by wealth management firm Capitalmind provides some intriguing insights. According to their research, investors typically reduce their exposure to the market a week before the budget announcement and re-enter a week after. This pattern has been observed since 2000, as reported by the Economic Times.

Anoop Vijaykumar from Capitalmind explains, “Our study shows that while there is significant volatility around the budget announcement due to high expectations, the long-term market performance is driven by the fundamentals of corporate earnings growth. Long-term investors should not make major equity allocation decisions based on budgetary expectations or announcements.” 

The study also highlights that the best budget day return was 4.1% on February 1, 2021, whereas the worst was a -5.4% drop on July 6, 2009.

The number of Demat accounts in India has seen rapid growth, reaching 151 million as of March 2024. In March alone, there were 3.1 million new Demat accounts opened, signalling a surge of newcomers entering the investment and trading communities.

Jatin Gedia, a technical research analyst at Sharekhan, notes, “New investors have mostly seen an upward trend since the COVID-19 market crash and haven’t experienced all market cycles. The recent volatility on election result day is a reminder of how markets can react negatively.”

Vaibhav Jain, Head of Content and Education at Share.Market, points out on LiveMint that budget days have historically been highly volatile. “Nifty 50 has moved 2-3% intraday on 10 out of the last 13 budget days (2014-2024). Instead of betting on market direction, a strategy focusing on volatility might be more effective,” he advises.

Puneet Sharma, CEO and Fund Manager at Whitespace Alpha, suggests that retail investors should adopt a long-term perspective, especially given the expected continuity in government policies. “For those trading intra-day through derivatives, consider placing stop losses at reasonable levels. Options trading is likely to see higher premiums due to anticipated volatility,” he adds.

Conclusion

The Union Budget has been a Big day for investors and traders, but not a good day for all since the market's reaction history on the budget day has been volatile, ranging from a 4.1% gain in 2021 to a 5.4% drop in 2009. They prepare for it and set their goals for the day. And now that day it is almost knocking on their door. So, expert insights and historical patterns can guide them through the expected market turbulence on the Union budget 2024. Understanding the market behaviour highlighted by Capitalmind and knowing experts' opinions can help them as a prerequisite. The rule is simple: the more you sweat in the field, the less you bleed in the battle.

Also Read: 
1. Budget 2024 Live Updates
2. Budget 2024 Highlights
3. Full List of Schemes Announced in Budget 2024-25
4. Economic Survey 2024 Highlights & Summary
5. Budget 2024: Full List of Cheaper and Costlier Items