How does correction come into play in Budget?

How will the Budget impact the stock market?

Stock markets have moved up 30 per cent over the last one year without seeing any major correction. Will Budget 2018 unleash that correction? It seems likely. First, the possible breach of fiscal deficit target will not go down well with the markets. Second, investors are wary of the long-term capital gains tax coming in the Budget.

Even historically, stocks have responded negatively to the Budget. The benchmark Sensex has fallen in eight out of the last 10 counts in the one-month before the Union Budget. This included three interim Budgets. The Sensex has fallen in the range of 0.54 per cent and 6.90 per cent on these counts. Excluding the interim Budgets, the Sensex has fallen in nine out of the last 10 full-fledged Budgets.


However, following the Budget, the trend has been largely positive with seven out of the last 10 Union Budgets, including interim ones. In a month after the Budget, the Sensex has gained 0.58-10.47 per cent.