Sensex has the scope to soar some more

MUMBAI: If you are looking to make a quick buck, try the pre-budget punt. In seven of the last 10 budgets that were presented in February, share prices went up, giving investors an average gain of at least 5.4%.

On the other hand, if you want to try your hand at short-selling, your best bet is to start your bear act from February 27, a day before this year’s budget. In seven of the last 10 years - excluding the years when budgets were not presented at the usual time - the markets drifted down.

An analysis of Sensex movements in January and February since 1995 shows that the index saw pre-budget rallies of 10 per cent or more on five occasions. Between 1995 and 2006, the index has fallen only thrice. Even here, the really worrisome drop was in 1995, when the index tumbled 12% (see chart). The other declines were minor. The analysis excludes 1998 and 2004, when budgets were unveiled in June and July, respectively.

The Sensex surged 13%, or 409 points, from 3,110 to 3,519 in January-February, 1996, before the budget presented by P Chidambaram under the United Front government. It did an encore in 1997, when he presented his ‘Dream Budget’, which ultimately turned out to be a nightmare.

The Sensex, however, saw its best pre-budget rallies during Yashwant Sinha’s reign in North Block - in 2000 and 2002. The index gained 735 points, or 14.7%, in January-February 2000. Two years later, the index recorded another 13.6% jump.

In 2007, the Sensex has so far gained over 3% since December-end. So if the index at least equals the average gain of the last 10 years (5.41%), there will still be some steam left before Chidambaram does his stuff on Budget Day. So, what are you waiting for?