The benchmark indices have remained volatile over the past three months. After gaining nearly 5 per cent between October 30 and January 14, the S&P BSE Sensex has given up most of its gains. Its three-month return has now reduced to 2 per cent. In this backdrop, investors would keenly track the Union Budget on Saturday. The past data regarding the behaviour of indices after the budget announcements reveal that equity markets often exhibit an inflection point.
For instance after the 2015 budget, the Nifty peaked at around 9,000 and then fell gradually making a low of around 7,000 on the day of the budget in 2016.
The following year, the Nifty lost over 10 per cent until the budget presentation in February 2017, which came after demonetisation in November 2016. However, a month after this budget which had a proposal to cut income tax to 5 per cent for individual income between Rs 2 lakh and Rs 5 lakh, the index claimed a new high for the first time in over two years.
After the 2018 budget, which introduced long-term capital gains tax on equity investments, the Nifty fell significantly in the following months. It then remained rangebound for about three months before the 2019 budget, which preceded the general elections. In less than two months since that budget, the Nifty gained 8 per cent making a fresh high.
This year, however, the probability that the indices will sustain the trend observed six months ago remains low. That makes the 2020 budget even more crucial for investors, given the volatility of the recent past.
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Source: Economic Times
