Money > Budget > Budget News & Analysis FEBRUARY 5, 2002 I 12:10 IST rediff.com
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Be smart. Play the market before the Budget

B G Shirsat

First the good news. It is mildly profitable to play in market during the traditional pre-Budget rally and then exit on the day of the Budget, a study of stock market trends before and after the last nine Budgets - between Manmohan Singh's March 15, 1995 Budget and Yashwant Sinha's February 28, 2001 Budget - shows.

The bad news? Playing the market after the Budget can burn a sizeable hole in the punter's pocket.

The study of the movements of the BSE Sensex suggests that investors made money seven out of nine times in pre-Budget rallies and lost money six out of nine times after the Budget.

The study looked at Sensex movements from a month before the Budget to the day before the Budget, and for a month after the Budget.

During the month before the last nine Budgets, the Sensex gained 2.14 per cent on an average in pre-Budget trading. On an average, the Sensex fell after the Budget by anywhere between 4 per cent and 6 per cent. Clearly, playing the stock markets after the Budget is risky.

Of the nine budgets, the Budgets of February 26, 1996 and March 25, 1998, were interim ones.

Unfortunately, even those who profited from trading in the run-up to the Budget have not made a pretty packet. Though punters made money in pre-Budget rallies in as many as seven out of nine occasions, they made hefty gains only in two pre-Budget rallies. In the other five pre-Budget rallies, their gains were small beer - around 1 or 2 per cent.

Punters gained only in three post-Budget rallies of the BSE Sensex - and even these gains were a modest two to six per cent. However, the BSE Sensex lost over 10 per cent in each of the three occasions and dropped by around 6 per cent on two occasions.

Typically, when the Sensex loses or gains one per cent, individual stock prices plunge or climb by anywhere between 4-6 per cent. The study suggests that the multiplying effects of losing money on individual stocks is much higher than the appreciation in market values.

Take, for instance, Yashwant Sinha's Budget of February 28, 2001. After the Budget, the Sensex declined by 10.80 per cent. But the share price of NIIT fell 36 per cent, that of Infosys and Satyam Computers declined by over 25 per cent, the price of the Telco scrip tumbled by 31 per cent and the Zee Telefilms scrip was down by 21 per cent.

Only twice during the last nine Budgets have punters gained substantially. In 1996, after Manmohan Singh presented the Budget, the Sensex rose by 21.65 per cent or by 321.91 points.

In 1998, after the Budget was presented by Yashwant Sinha, the Sensex appreciated by 377.94 points or 10.58 per cent.

But after other Budgets, the Sensex plunged much more steeply than it gained. After the Budget of July 22, 1996, the Sensex lost 419 points or 11 per cent.

The figures for the June 1, 1998 Budget and the February 28, 2001 Budget: 412 (11.31 per cent) and 459 points (10.80 per cent), respectively.

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