The capital markets are an essential component of the modern economy. No major economy can function without a vibrant capital market. At the fundamental level, capital markets help in channelling funds for long-term productive use by companies and governments. Keeping pace with economic growth, the Indian stock market has witnessed substantial growth in the last decade. Successive governments have played a critical role in supporting the growth of the capital markets in the country, which is why large and small investors wait anxiously for the union budget every year.
The Union Budget 2021 is one of the most awaited budgets in the recent past as the market is expecting the government to provide a clear roadmap to counter the impact of the Covid-19 pandemic on the economy. The reaction of the market on the day of the budget is an indicator of what investors think of the government’s vision for the economy. The benchmark indices have declined on some occasions, while investors cheered the government’s measures on other occasions with a jump in the benchmark indices on the budget day. Let us take a detailed look at the performance of the Sensex on the budget day in the last 10 years and understand #BudgetKaMatlab!
Union Budget 2010
The then Finance Minister Pranab Mukherjee had presented the budget on February 26. The effects of the global crisis of 2008 were waning and the finance minister aimed to touch the 9% annual growth rate mark at the earliest. The budget was aimed at controlling inflation, boosting rural infrastructure and rectifying supply-demand imbalances in the economy. The stock market on the budget day in 2010 reacted positively to the announcements and the Sensex rose 1.08%. The fiscal deficit was at 5.5% of the GDP.
Union Budget 2011
Pranab Mukherjee presented the union budget on February 28 in 2011. The tax exemption limit for individual taxpayers was increased to Rs 180,000 from Rs 160,000 and the qualifying age for senior citizens was lowered to 60 and exemption increased to Rs 250,000. The moves were cheered by the market and Sensex gained marginally by 0.69% on the day. Lower fiscal deficit of 4.6% from the previous year too contributed to the positive sentiments.
Union Budget 2012
In 2012, Pranab Mukherjee presented his last union budget. The finance minister announced an increase in tax exemption limit for individual taxpayers. The exemption limit was raised to Rs 200,000 and the income tax slabs were rationalised. The Indian stock market was not enthused by the announcements and the benchmark Sensex ended the day down 1.19%.
Union Budget 2013
P Chidambaram presented the Union Budget 2013 on February 28. An increase in taxation on rich individuals and companies was proposed in the budget. A surcharge of 10% was proposed for individuals with an annual income of more than Rs 1 crore. Similarly, a surcharge of 10% was imposed on companies with annual revenue of more than Rs 10 crore. The market reacted negatively and Sensex fell 1.52% on the day.
Union Budget 2014
A new government was elected in 2014 and the Union Budget was presented by Finance Minister Arun Jaitley on July 10. While the minister increased the investment and exemption limit for individual taxpayers, the law on retrospective taxes was retained. The Indian stock market on budget day witnessed a minor selloff and the Sensex declined 0.28% on the day.
Union Budget 2015
Finance Minister Arun Jaitley presented the union budget on February 28. The government proposed to limit the fiscal deficit to 3.9% in 2015-16. The budget sought to boost investments along with the commitment to fiscal discipline. The market reacted favourably and Sensex ended the day 0.48% higher.
Union Budget 2016
The finance minister presented the budget on February 29 with big announcements like doubling of farmer’s income in five years. The minister stuck to a fiscal deficit target of 3.5% of the deficit. The budget failed to excite the market and the Sensex fell 0.66% on the budget day.
Union Budget 2017
In 2017, the government shifted the presentation of the budget to February 1. The finance minister presented the budget with a slew of announcements for farmers, youth and the underprivileged class. The government committed to fiscal responsibility and a fiscal deficit of 3% was proposed. The announcements were received positively by the markets and the Sensex rose 1.76% on the day, the highest gain on the budget day since 2010.
Union Budget 2018
Arun Jaitley presented his last budget in 2018. The budget had major proposals for MSMEs, employment generation and infrastructure. The government pegged the fiscal deficit at 3.3% of the GDP. The Sensex fell marginally by 0.16% on the day.
Union Budget 2019
The new finance minister Nirmala Sitharaman presented the union 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 30-share Sensex ended the day down 0.99%. On the day of the interim budget presented earlier in the year on February 1, the Sensex had risen 0.59%.
Union Budget 2020
The finance minister presented the union budget on February 1. The markets had high expectations from the budget amid a slowing economy. However, the proposals left investors disappointed. The market witnessed a major sell-off and the Sensex fell 2.43% on the day, recording the highest decline on budget day in the last 11 years.
The Indian stock market on the budget day has witnessed major sell-offs as well as buying actions. The reaction of the market on the budget day largely depends on pre-budget expectations. With the pandemic roiling the economy in 2020, the market expects an investment boost from the government in 2021. Visit #BudgetKaMatlab and join us there as we sit to decode #budgetkamatlab!