Can Budget 2025 drive a market rally? History offers clues

The wait is almost over! On the first day of February, people from all over the country will be glued to their screens, waiting to see what the Finance Minister has in store for them.

You guessed it right. We are talking about the Union Budget, perhaps India's most anticipated financial event of the year. Suddenly, everyone from news channels to your neighbour becomes an expert on what the government should or shouldn't do.

But with all the buzz, how does the market actually react? Is it calm or jittery around Budget time? We dive into the average returns of the Sensex over the past 25 years to see how the market responds one week before and after the big announcement.

Yay or nay? How the market has behaved pre-and post-Budget

Based on the table at the end of the story, here are a few key observations.

Pre-budget weekly return

• The market has rarely been in high spirits a week prior to the Budget announcement. In fact, there have been 17 instances of average negative returns over the last 25 years, with the lowest being -10.2 per cent in 2007.
  
• The positive returns have also remained low, which may indicate the market's cautious outlook in the days leading up to the Budget.

Post-budget weekly return

• The outlook appears to be better, with just eight instances of negative performance.
  
• Barring a few years, post-Budget market returns have been higher, going as high as 7 per cent in 2016.

Your takeaway

To reiterate, while Budget Day is packed with anticipation and speculation, historical trends suggest that the market tends to be cautious in the lead-up, often trading in the red. However, post-Budget movements have generally been more positive, especially during full Budgets, reflecting investor confidence once policy directions become clear.

That said, past trends don't guarantee future outcomes - market reactions depend not just on the announcements but also on how they align with expectations. So, while the Budget may influence short-term market swings, long-term investors would do well to stay focused on fundamentals rather than short-lived sentiment.

Also read: The Budgets that changed India - but no one talks about them