Budget and Sensex! What are you expecting?

The below research is published in "The Financial Waves Monthly update" By Waves Strategy Advisors. For subscription options visit www.wavesstrategy.com 

Indian markets are riding high on expectation of Budget this time, which is believed to reduce to focus on reducing fiscal deficit, boosting growth and economic revival.

This time there are high expectations set on Budget day but it can act as short term ….. until July end and ………. major correction kicks in till April 2015 which will be a multiyear low and the unprecedented rise will continue towards 61000 mentioned in last year report!!!

Below chart shows movement on Sensex on the Budget day since 2000. We have marked numbers on the chart indicating the budget day and same has been explained in the table. Through this research we tried to find out the trend before and after the budget and percentage movement on the same day.

Sensex chart:

S. No.	DATE	RULING PARTY	BUDGET DAY HIGH-LOW MOVEMENT (%)	TREND ONE WEEK BEFORE BUDGET	TREND ONE WEEK AFTER BUDGET
1	01/06/1998		-4.78	Negative	Negative
2	27/02/1999	NDA	5.75	Negative	Positive
3	29/02/2000		-8.8	Negative	Negative
4	28/02/2001		5	Negative	Negative
5	28/02/2002		-5.19	Positive	Negative
6	28/02/2003		-1.41	Positive	Negative
7	03/02/2004 (IB)	NDA	-2.88	Negative	Positive
8	08/07/2004	CONGRESS	-3.90	Positive	Positive
9	28/02/2005		2.6	Positive	Positive
10	28/02/2006		2.10	Positive	Positive
11	28/02/2007		-3.7	Negative	Negative
12	29/02/2008		-2.9	Positive	Negative
13	16/02/2009 (IB)	CONGRESS	-3.70	Positive	Negative
14	06/07/2009	CONGRESS	-7.53	Positive	Negative
15	20/02/2010		1.45	Positive	Positive
16	28/02/2011		3.25	Negative	Positive
17	16/03/2012		-2.5	Positive to Sideways	Negative
18	28/02/2013		-2.70	Negative	Positive
19	17/02/2014 (IB)	CONGRESS	0.75	Positive	Positive

Here we have shown movement on Sensex on the Budget day since 2000. We have marked numbers on the chart indicating the budget day and same has been explained in the table. Through this research we tried to find out the trend before and after the budget and percentage movement on the same day. These are the following observation:

1)            As seen on the table in 2000 Sensex was negative by more than 8.5% which is the lowest and on the flip side positive by 5.75% in 1999 which is the highest since 1998.

2)            The average movement on Sensex from 2000 is 3.70% therefore in upcoming Budget on 10th July 2014 we can see a movement of anywhere between 2.5% to 4% between highs and lows.

3)            Whenever the new government is formed in five years we have witnessed that the budget day has been very volatile and 4% to 7% movement has been seen and out of 6 observations post Election the Budget day has been negative on 4 occasions and with only minor positive close of 0.75% in recent IB.

4)            Eleven times trend has reversed after the budget for atleast a week. Out of these eleven times: from negative to positive – four times and from positive to negative – seven times. Hence there is higher probability that this time market might correct on downside for a week atleast.

5)            Sensex has closed negative 12 times on budget day and on the positive side only 7 times.

In the end we can conclude that budget day would be very volatile with movement anywhere between 2.5% to 4%. The probability as per above statistics is favoring more towards negative close on B- Day than positive. Traders should follow strict risk management strategies accordingly.

In addition to above research we have also published a detailed analysis on 

- Relationship of Nasdaq100 and CNX IT

- Price action of Dow Jones, Sensex and Crude during the War & Crisis

- SAIL Long Term Outlook

- USDINR price forecasts

To get access to the complete research subscribe to “The Financial Waves Monthly update” along with short term research report for better timing the entries and exit and knowing the trend right from short, medium to long term forecasts till 2020! Visit http://www.wavesstrategy.com/index.php/store.html