Impact Of Union Budget On Indian Stock Market

Abstract

This paper analyzes the impact of Union budget on NSE's CNX NIFTY Index. The impact is measured in terms of daily average returns and volatility over the short term, medium term and long term period in pre and post budget period. The data has been collected for five budget periods from 2011 to 2015. The statistical tools used are paired T-test and F-test. Paired T-test is conducted on average returns and F-test is conducted on variances over the period i.e., 3, 10 and 30 days in pre and post budget period. The maximum impact of budget is seen in short term then it gradually decreases in medium term and finally diminishes in the long term. The implication of this paper is that the investor should fear from investing in the stock market around the budget period.

Interrelation between the Institutional Investors and the Union Budget in the Indian Stock Market

“…They concluded that volatility diminishes with the increasing period. (Gakhar et al, 2015) have also found the same results as that Gupta and Kundu. They concluded that careful investment decisions should be made by the investors before investing around the budget period.…”

“…This makes the capital market a little sensitive and volatile. In the previous studies also, it is found that stock indices are highly volatile surrounding the budget day which ratifies the fact that investors continuously predict the policy changes in a confused state of mind (Gakhar et al, 2015;Kaur, 2004). Two major types of investors i.e., foreign institutional investors (FIIs) and domestic institutional investors (DIIs) are largely accountable for the movement in the stock market index (Sehgal and Tripathi, 2009).…”

“…Investors' perceptions play a major role in deciphering the policy changes which ultimately impact the performance of the Indian securities market. It is usually witnessed that the investors act diffidently in estimating the provisions to be introduced by the government in the Budget which brings an element of instability to the Indian bourses (Babu and Venkateswarlu, 2013;Gakhar et al, 2015) . Investors holding stocks from diversified sectors expect good news and react accordingly.…”

Impact of Government Budget Announcement on Stock Market Sector Indices: Evidence from Colombo Stock Exchange

“…Similar to India, UK also tends to react in short and medium term, mainly observing high anxiety about budget announcements during the period close to Budget day. Gakhar, Kushwaha and Ashok [4] also finds similar results in India evidencing the maximum impact of the budget in shortterm and gradually decreasing in the medium term, and eventually diminishing in the long run. Ranjani, Sujeewa and Rathnasiri [12] has conducted an event study to investigate the effect of government budget announcement on CSE and have observed that there is an upward trend in the market reaction to the years which include tax concessions and exceptions.…”

Effect of Government Budget Announcement on Stock Returns: Evidence from Nepal Stock Exchange

“…as similar results were seen in these stock exchanges as well. The volatility in the average abnormal return in Nepal was found to be significant post the budget announcement for -20 and +20 days, which enables investors to earn abnormal profits during the expected budget announcement (Gakhar et al,2015 andMehta, 2018). Sireesha (2016) depicted similar significant results in Sensex and Nifty on the medium term (41 days event window).…”