The strange case of UPA's famed economic and the markets

With the famed A-team comprising Dr Manmohan Singh, Pranab Mukherjee, P Chidambaram and Montek Singh Ahluwalia to flaunt, the United Progressive Alliance (UPA) budgets should have been the toast of the bulls at the stock market? Not really!

A Zee Research Group (ZRG) analysis shows that the stock market has generally chosen to adopt a bearish trend when it comes to responding to a majority of full length budgets presented during the UPA (1 & 2) government.

The ZRG analysis shows that of the nine budgets presented so far by the alliance, stock market led by Sensex turned bearish five times as the 30-stock index closed lower the day these budgets were presented.

The study further revealed that that the average Sensex fall on the UPA budget days has been around 1.9%. UPA government’s first budget hit the market adversely with registering a 2.26% fall over the previous day’s close. This resulted in a loss of 112 Sensex points.

The declining trend persisted during 2007, 2008 and 2009. During these three consecutive years, the Sensex slipped by 4.01%, 1.38% and 5.83% respectively. The Sensex accordingly dropped by 540, 245 and 869 points in these three years respectively on the day of the budget. The 2012-13 budget presented by Pranab Mukherjee too witnessed Sensex dip by 1.19% with the stock market terming it as “no body’s budget”.   

 Terming UPA budgets as being “generally against the market sentiment” in India, Jagannadham Thunuguntla, head of research, SMC Global Securities said, “Budgets presented in UPA regime never sat well with the market situation. In fact they (budgets) mostly had a negative impact on the sentiment.”  

Endorsing Thunuguntla’s point Laveesh Bhandari, Founder and Director of Indicus Analytics, an economic policy think tank, said, “UPA budgets have been very average in their performance.” These have not had the opportunity to match the market sentiment, he argued to explain the decline trend.

The UPA, however, bucked the decline trend in 2010 and 2011 when Sensex went up by 1.08% and 0.69% respectively on the budget day. The Sensex accordingly grew then by 175 and 122 points respectively.

Lalit Khanna, Chief Consultant, Globe Capital Markets said, “Budgets generally don’t impact markets in a big way. Budget traditionally is a policy document and its key focus is to improve employment, reduce inflation and trade balance in the country.”

This perhaps explains the mixed response from the stock market, primarily the Sensex. Post the presentation of the 2005 and 2006 UPA budgets, the Sensex grew marginally. Sensex went up by 2.19% in 2005 and 0.86% in 2006. During 2005 and 2006 on the budget day the Sensex points registered improvement by 144 points and 88 points respectively.

On post budget day in 2005 the Sensex fell by 0.94%, while in 2006 it went up by 1.88%. In 2007, 2008 and 2009 on the following day of budget, the Sensex closed 1.71% high, 5.12% low and 0.90% higher, respectively.

Last three post budget stocks witnessed a mix trend again. Twice, Sensex ended with a marginally better position from the last day, but in the latest budget, the Sensex continued to dip even post budget.