NSE’s CNX500 index provided a median return of -0.1% across 24 Budget Days since 2000 according to a study by Capitalmind Financial Services Pvt. Ltd., a SEBI registered portfolio manager.
The best return on Budget Day was observed on February 1, 2021, at 4.1% and the worst at -5.4% on July 6, 2009, the firm said.
“Negative median one-month and one-week prior returns of -2.2% and -1.4% respectively, indicate watchful behaviour leading up to the announcement. Returns one year prior and one year after are symmetrical,” it added.
“Market behaviour one week before and one week after Budgets are interesting mirror-images of each other as investors seem to reduce exposure due to uncertainty leading up to Budget Day, negative 63% of the time, followed by re-entering once uncertaintyrecedes after the event, positive 62% of the time,” it further said.
However, if one invests on the day before the Budget, returns one month later indicate a coin toss, with a 54% probability of being negative. Once you increase the time horizon, the odds of positive returns on the one-year time frames are consistent with the overall equity market behaviour, that is, positive in 2-3 of any 4 years, the firm said.
Anoop Vijaykumar, Head, Research, Capitalmind, said “There is significant volatility leading up to and immediately after the Budget…the longer term is driven by underlying fundamentals of corporate-earnings growth.”
“Long-term investors should avoid making significant equity allocation decisions based on expectations or announcements made during the Budget. Instead, they’d be better served by staying the course with their investment plans, keeping their financial goals in mind,” he added.
