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Here's a look at how markets have been reacting to budget presentations over the years

Domestic stock markets have witnessed high volatility during most budget announcements in the last 14 years, falling on six occasions and rising on eight

January 31, 2022 / 12:41 PM IST

Finance minister Nirmala Sitharaman will announce the budget on Tuesday for 2022-23 which will likely be a balancing act of supporting growth and maintaining fiscal prudence without major changes in tax rates, analysts say.

The FM will present the budget at a time when global central banks are expected to tighten policy, crude oil price is surging and COVID cases continue to increase. With seven states going into elections this year and five of them gearing up for polls post budget, concerns around this budget turning into a populist one are heightening.

Local equity markets -- Sensex and Nifty -- have fallen over 3500 points and 1000 points, respectively, in the last week as foreign investors remained net sellers for the fourth consecutive month.

The domestic stock markets have witnessed high volatility during most budget announcements in the last 14 years. The equity benchmark has fallen on six ocasions and risen on eight.
Typically the budget presentation day is marked by big swings in equity markets as investors try to make sense of the various budgetary announcements. Last year, both Sensex and Nifty advanced over 5% each as investors cheered a positive budget.

Analysts say volatility in the markets especially on the budget day cannot be ruled out as the government may unveil more measures to lift economic growth which has taken a hit due to the pandemic.

Here is a table of the last 14 years of the Sensex and Nifty's reactions to the budget.


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Budget expectations:

"Despite the polls' pressure, we expect the FY23 budget to stick to the reform agenda. Budget-making is always a challenging exercise, but the demand for continued support for growth especially during the current pandemic makes this task even more daunting. All in, as growth recovery continues in FY23, we see fiscal deficit as percentage of GDP moderating to 5.8%. While there are headwinds to direct tax revenue collection, we are quite hopeful for a big turnaround on the divestment front. At the same time, pressures of elevated revenue expenditure, particularly subsidy, are expected to moderate as we go into FY23. Capex spend will remain a key focus area in our view," BofA Securities said in a note to investors.

Since BofA doesn't see any slippage in FY22 as far as fiscal deficit is concerned, it does not anticipate any additional government borrowing atop the announced net Rs 12.05 lakh crore (including T-bills and buybacks).

For FY23, analysts expect 61% of the fiscal deficit to be funded via market dated G-sec, Rs 9.1 lakh crore and another Rs 45,000 crore through T-bills. Atop this net borrowing, there is Rs3.76 lakh crore worth of maturities in FY23. Analysts see total gross borrowing of Rs 13 lakh crore in FY23.

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Moneycontrol Research
first published: Jan 31, 2022 12:41 pm
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