Budget 2023: Will Nifty Rally Or Fall? Here Is How Markets Have Behaved After Budget Speech In Past

In the last five years, the markets have fallen after announcement of the Budget four times. And 26 per cent of the times in these five years, markets have fallen both before and after Budget speech

The markets have been tumbling since the beginning of 2023; first in line with global indices and lately because of the Hindenburg report on Adani Group. Inflation also remains a big worry for the market amid a continuing geopolitical crisis. Corporate earnings in the US and the future outlook of tech companies, which have been laying off thousands of employees, are adding to the negative sentiment. The Hindenburg report triggered fresh panic in the markets. Between January 2 and January 27, Nifty has fallen by 3.3 per cent. 

India's stock benchmark scaled new records in 2022 amid global uncertainty stemming from a looming recession in the developed nations and Russia's war in Ukraine. While S&P BSE Sensex and the Nifty 50 hit all-time highs of 63,583.07 and the Nifty 50 at 18,887.60, the benchmarks only rose 3.8 per cent and 3.66 per cent, respectively generating negative real returns (adjusted for inflation).

All eyes are now glued on the Union Budget to be presented Tuesday. A Budget is an estimation of receipts and expenditure of the central government over the next one year. It specifies allocations of various departments, projects the borrowing plan of the government, and also defines its fiscal road map. A Budget defines the duties on products, taxes on income, exemptions to industry and other incentives. It gives estimates of fiscal deficit and GDP growth. Resultantly, it impacts the earnings of companies and hence, the share price.

We have seen in the past that there is a build-up to the Budget day and then the market tanks or rises if the announcements are not as per the expectations. So, will the markets rise or fall after the budget this time? To answer this question, we analyse the Nifty’s performance during one month prior to and one month after the Union Budget announcement for each of the years starting from 2000.

Nifty's Budget Behaviour Since 2000

• Over the past 23 years, the market fell 61 per cent times after one month of the Budget speech. The average decline was 5 per cent during these years. However, in the times when it was higher, the average rise was 6.9 per cent.


• 26 per cent of the times it has fallen both before and after the Budget announcement, with the average fall being 4.6 per cent after the Budget and 2.1 per cent in the one-month time period leading to Budget.


• Investors were handsomely rewarded only 20 per cent of the time when Nifty rose both times — during one-month before and after periods. The average increase in the one-month-prior period was 3 per cent and an additional 6.1 per cent in the post-one-month period.


• Interestingly, the market has behaved in the opposite fashion 52 per cent of the time, meaning if the market has risen in the pre one-month period then it falls in the post-one-month period and vice-versa. It is important to mention that starting from the Union Budget 2018, Nifty has corrected every time but once during the post one-month period after the budget announcement. The year, 2018, is relevant because excise duties were outside the purview from that year due to the introduction of GST in July 2017.


• In 14 out of 23 years, the market has generated negative returns during the one-month period after budget announcement. Nine times, it has generated positive returns.

How Will The Market Behave This Year?

In an election year, populist measures which would disturb our fiscal consolidation roadmap will not be cheered by the markets. 

On the other hand, a relaxation of tax slabs could cheer markets as it could provide a fillip to private consumption. Similarly, continued focus on infrastructure creation, and high government spending will be music to the ears of the markets. 

In effect, in the last five years, the markets have fallen after the budget four times. And 26 per cent of the times, markets have fallen both before and after the budget announcement. Will this trend hold or since it has fallen in pre-Budget period, the trend of markets moving in opposite directions hold? 

If the opposite direction trend holds, then markets are likely to rally from here one month after the Budget date of February 1, 2023.

So, how will markets move after this year’s Budget announcement? Only time will tell. 

The authors are SEBI-registered investment advisors.

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