Impact of Budget on Indian Stock Market

The Union Budget of India is the government's annual financial statement outlining its plans for revenue generation and expenditure. Various policy decisions, tax rules, and investment norms are either updated or newly framed. It impacts the stock market as well. Allocation of funds and the government's approach to each economic sector affect the companies working in the particular industry. The outlook then determines investor sentiment and the potential performance of stocks in the subsequent days. This article will provide information on the impact of budget on the stock market.

How Does the Union Budget Impact the Stock Market? 

The impact of the budget on stock market performance is due to several factors that influence both short-term and long-term sentiment.   

• Tax rules are a prominent factor. Changes in corporate tax, capital gains tax, income tax. or other taxes directly affect investor sentiment. Lower taxes usually lead to relatively higher earnings for both businesses and investors. However, higher taxes have a negative effect.   
• Government spending and capital expenditure strongly determine a sector's performance. More funds allocated to the infrastructure, defence, energy, and connectivity generally benefit stocks in those sectors. Increased expenditure in core industries ensures long-term stability.  
• Policy decisions and new reforms impact market expectations. Structural reforms, privatisation plans, and production-linked schemes for domestic manufacturing can lead to robust economic growth. The announcements are usually considered while evaluating stock prices.  
• Targets for a lower fiscal deficit affect the bond yields, lending rates, and foreign investment. If a budget is able to balance both growth and fiscal discipline, the economic outlook improves, leading to a bullish share market on budget day.

Importance of Union Budget

The Union Budget is important for several reasons: 

Economic Planning: It shows how the government plans to spend and earn money for the year. It helps decide which areas to focus on and how to use resources. 

Policy Changes: The budget introduces new policies and changes that help boost the economy. It explains how the government will handle taxes, subsidies, and public spending. 

Fiscal Management: The budget helps control the country's debt and ensures that the government's income and spending are balanced, which is important for long-term growth. 

Regulatory Changes: The Budget often brings changes to rules that affect different parts of the economy, helping improve and modernize systems.

Market Reaction: Pre and Post Budget

The table below shows how the Sensex and Nifty performed one month before and one month after each Budget, starting from when the new government was formed. 

Case Studies of Key Budgets 

Over the years, several budgets have become important milestones in India's history. 

Long-term Effects of the Budget on the Stock Market 

The long-term effects of the budget on the stock market are often more important than immediate reactions. Budgets that focus on infrastructure, innovation, and fiscal stability enable businesses to expand, improve productivity, and grow with demand. 

For example:  

• A well-planned budget can help the economy grow and increase productivity, leading to higher company profits and rising stock prices.  
• Budgets focused on controlling spending can make investors feel more confident, reducing the risk of inflation and interest rate increases.  
• Some sectors may benefit from specific budget decisions, which can cause stock prices of companies in those sectors to rise. 

Conclusion 

Budget impacts the stock market as it hugely determines the performance of businesses. Growth, stability, and reforms are the primary objectives of a budget. The efficiency of the rules decides how the economic condition changes and the effect of budget on stock markets. So, understanding these changes and the budget impact on stock market is very important. Investors should open a Demat account online to track all the policy announcements on a reliable platform for making informed decisions.