Every year, the union budget day is an exciting day for stock markets. There is a lot of volatility in the market and if you are a day trader, you can take advantage of the volatility as I did on 29th Feb (Read: 100 point Nifty Future trade). However, volatility is just one part to it. While you will be able to read into the budget and budget analysis from lot of places, my intention is to give you insights into how the stock market investors and traders use the budget information to their advantage.
But before we dwell into it, let us look at what did the market do post budget. Yesterday the markets gave their biggest daily absolute gain in 7 years. The SENSEX was up by almost 800 points. Nifty also had a great run yesterday and closed about 184 points up. Today also the markets have opened in green and they are all rallying nicely. What could be the possible reason for this? Why is it that the markets are all green and giving positive response to the budget?
The tale of Fiscal Deficit
The most important reason is FISCAL DEFICIT. For those who don’t want this means, it is the difference between the Income and Expenses of the Government. A higher fiscal deficit is bad for the country as it has to borrow or arrange for the extra funds to meet the expenses. The following table details the level of fiscal deficit for each year. As you can see, it is reducing year on year under this government. This is a positive sign for the economy. Also, when the fiscal deficit is under control, the Reserve Bank of India (RBI) has an opportunity to reduce the interest rates further in order to increase the economic activity. Whenever RBI reduces interest rates, markets go up. There is an inverse co-relation between the two.
Hence, the markets are rallying because of the anticipation that RBI would anytime reduce the interest rate by at least 25 basis point. We do not know when this can happen, but there is a good chance of this happening in the next 1 – 3 months.
Source of the table: The Indian Express
How to relate the budget information with specific stocks?
Now we will look at specific information about different stocks and how it has affected the stocks.
The capital infusion in the banks. Whenever, we talk about banks, one of the most important aspects that we have to look at is the Non Performing Assets. If the bank has very high NPAs, it means, that in the near time the bank’s future looks bleak and that it can go down. As soon as the government announced capital infusion of Rs. 25000 crore for the state run banks, the stocks of the banks soared. Here is a small table with the prices of different PSUs between 29th Feb and today.
|Bank Name||29th Feb||2nd Mar||Return|
|Central Bank of India||₹ 58||₹ 67||14.66%|
|Bank of India||₹ 82||₹ 92||12.20%|
|Union Bank of India||₹ 107||₹ 120||12.15%|
|Bank of Baroda||₹ 132||₹ 148||11.74%|
|State Bank of India||₹ 158||₹ 176||11.39%|
|Canara Bank||₹ 158||₹ 175||10.76%|
|Allahabad Bank||₹ 43||₹ 48||10.58%|
|Karnataka Bank||₹ 86||₹ 95||10.00%|
|Oriental bank of commerce||₹ 77||₹ 84||9.85%|
|Syndicate Bank||₹ 51||₹ 56||9.80%|
|Andhra Bank||₹ 46||₹ 50||8.70%|
|IDBI Bank||₹ 59||₹ 64||8.63%|
|Punjab National Bank||₹ 71||₹ 77||8.45%|
|Indian Bank||₹ 77||₹ 83||7.77%|
|Corporation Bank||₹ 32||₹ 34||7.05%|
|Indian Overseas Bank||₹ 25||₹ 26||6.52%|
|Punjab and Sind bank||₹ 32||₹ 34||6.25%|
|UCO Bank||₹ 32||₹ 34||6.25%|
|United Bank of India||₹ 18||₹ 19||5.56%|
|Vijaya Bank||₹ 31||₹ 33||4.65%|
|Dena Bank||₹ 26||₹ 27||4.42%|
|Bank of Maharashtra||₹ 29||₹ 30||3.97%|
You can see that how one could have made anywhere from 4 – 14% within these 2 days from these stocks. All because of one piece of information about the capital infusion. All the banks might not have gone up only because of the news but also might have gone up as over all market is also going up but even if one considers the news, and invest in some good banks like SBI or Bank of Baroda you could have still made 11 – 12%.
Now, let us look at other piece of information. Excise duty on rubber sheets and resin rubber sheets for soles and heels cut to 6% from 12.5%. What does this mean? Rubber has become cheaper, so which industry would impact from this news? Of course, the footwear industry.
|Footwear company||29th Feb||2nd Mar||Return|
|Liberty Shoes||₹ 131||₹ 151||15.27%|
|Mirza Intl||₹ 90||₹ 98||8.89%|
|Relaxo Footwear||₹ 387||₹ 409||5.68%|
|Superhouse||₹ 131||₹ 138||5.34%|
|Bata India||₹ 455||₹ 473||3.96%|
|Bhartiya Inter||₹ 462||₹ 466||0.87%|
So look at the table above. Some stocks have gone up as high as 15% based on this news. The expertise of a stock market investor or trader is to identify the right stock and also to identify the news associated with the right industry and trade or invest accordingly.
There are many ways in which stocks could be analysed. My intention was to show you as to how the union budget impacts the stock markets and certain stocks specifically. However, in day to day life of an investor/trader, such news and information always hold importance.
Featured Image Source: India.com