Pre-budget market gains indicate juicier days ahead

MUMBAI: The Budget is one event that the Indian market always looks forward to. From the beginning of the year, traders and investors start studying market conditions and building positions based on their expectations from the Budget.

Data since 1992 show that 15 out of 22 times, the market had rallied from the beginning of the year to the Budget day. Of these 15, in as many as 11 times, the Sensex at the end of the year had closed higher than at the beginning of the year.

More recent data – since 2005 – showed that in each of the years when the Sensex gained from the beginning of the year until the Budget, it continued to gain through the year (see table). This year, the Sensex has already added 5.5%.

In the previous bull run – in 2004, 2005 and 2006 – the Sensex gained from January 1 until the Budget day, by between 0.5% and 10.4%, and continued the uptrend through the years. In fact, the post-Budget gains were sharper.

On seven occasions since 1992, the market had corrected before the Budget. Most of these had been during bearish times, and the market had continued the downtrend until the end of the years. For instance, in 2008, the Sensex fell 13% from the beginning of the year until Budget and then corrected by another 45% by December-end. A similar trend was observed in 2011.

The year that closely resembled the current situation was 2005. The UPA 1 was unveiling its second Budget and the bull market had begun around a year earlier.

The Sensex rose 0.5% from the beginning of the year until the Budget and gained another 40% from the Budget day till the year-end.

Expectations from the current BJP government are high. The Sensex has gained 5.5% year to date and if one has to believe market observers, the index should continue its momentum.