Traditionally, the Union budget is an important event of the financial year which also referred to as the annual financial statement of the estimated receipts and expenditures of the government in that particular year. It is the time when the government announces the things that it planning to do next year. Generally, the budget presents in the month of February every year except the election year where first an interim budget presents by the ruling government in the month of February. Due to which all throughout February, the budget managed to affect the Indian stock market. Even this year, there was much volatility during the time of interim budget 2019.
It is because the government presents the annual financial statement for the next fiscal year where it proposed changes in the several policies which ultimately impacted favorably or otherwise the stocks of companies who are related to it. It is not just the stock market but economy and interest rates are also affected by the budget.
There is a direct relationship between the economic performance and financial markets performance of a country. As India is one of the emerging markets, it’s stock market tends to perform better in growing economic rate, and vice-versa. For instance, when the economy grows, the output increases which ultimately increase in the profitability of the companies or firms connected to the outputs. Higher the profits, more attractive the stocks of companies are. When stocks start to increase in value, the stock market will show an upward trend.
This is why; the budget is one of the most-watchful events in formulating the economic policies of a country. The fiscal policy which represented in the annual budget helps in forecasting the economic growth of a country. Apart from this, the expenditures to be made in different sectors, interest rate decisions, policy regarding taxation, and changes in the rates of different commodities and services influence stock market somewhere. The stock market often moved by the ‘quality’ of the budget. If the budget announced is to cover the major macro-economic aspects. Even after the announcement, the market responds immediately and needs time to digest the budget announcements.
If the budget indicates spending in infrastructure, infra companies likely to get benefit from the budget and will see a rise in share prices over time. So, individual sectors read budget differently. For example, the tech sector benefits from lower taxes and subsidies to semi-government companies, etc.
So, undoubtedly the budget affects the stock market. It is important for an investor to watch for budget and proceed cautiously around the time of budget and make smart decisions after in-depth research and analysis. It is also the time to minimize the risk and maximize the profits of their investment in budget news.
Hope, this article helps you in understanding the relationship between budget and the stock market. If you have any query or would like to suggest something here then don’t forget to mention in the comment section below.