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February 23, 1999
Crash a feature of Budget-time stock indices
M P Joshi in Bombay
Pre-Budget and post-Budget rallies are a regular feature of the stock market. However, barring two incidents in the history of Union Budgets, the market always witnessed an erosion in the index value during the post-Budget trading sessions, according to the data of India Index Services and Products Limited.
The data shows that in 1995 and 1998, the NSE indices maintained the gains recorded a month prior to the Budget presentation for a month afterward.
The Nifty was quoted at 1002.49 points in February 1995. Then finance minister Manmohan Singh presented the Budget on March 15. The Nifty climbed to 1050.68 on Budget Day and was quoted at 1047.08 points, showing a gain of 4.81 per cent.
However, the picture was different in the next two straight years as the index suffered major losses during a month after the Budget session. In 1996, the Nifty was quoted lower at 830.88 a month before the Budget. It touched a high of 1027.39 points on February 28, the Bbudget Day and subsequently eased to 974.17 as against the 1027.39 points, showing a decline of 5.18 per cent.
In 1996, the Nifty started at 1146.78 points around June 22, 1996 and surprisingly went down to 1121.37 points on July 22, 1996. During the Budget of the United Front finance minister P Chidambaram, the index further dropped to 999.19 in the post- Budget trading session during the month after the Budget, showing a net decline of 5.18 per cent.
In 1997, when the second Budget by Chidambaram was seen as a dream Budget by the marketmen, the Nifty was quoted at 1017.20 one month before the presentation and rose sharply to 1053.55 points on the Budget Day. The index further moved up to 1057.80 points, one month after the Budget, gaining 0.40 per cent.
The stock market which had surged on the formation of the BJP-led coalition government at the Centre in March 1998, reacted differently at the time of Yashwant Sinha's Budget on June 1. The Nifty that was quoted at 1185.15 points around May 1, declined sharply to 1053.75 points on June 1. It lost further ground in the month after the Budget and was quoted at 942.25 points, showing erosion of 10.58 per cent.
The data further reveals that sectors like information technology, cigarettes, food processing, computer hardware and solvent extraction emerged as prominent gainers in the last five years.
S&P CNX computers-software index gained by 981.65 per cent to 12622.53 on February 17, 1999 as against 1166.97 in April 1994. Similarly, S&P CNX cigarettes index jumped by 116.46 per cent to 2049.74 (946.94), S&P CNX food and food processing index shot up by 119.29 per cent to 2250.29 (1026.15), S&P CNX computer-hardware index gained sharply by 98.80 per cent to 1770.21 (890.47 points).
Sectors like textiles and synthetics, textile products, transmission towers, paper products and finance were the major losers, according to IISL.
S&P CNX textiles-synthetic index lost considerably by 94.32 per cent to 64.52 on February 17 as against 1136.81 points on April 1, 1994. Similarly, CNX textile products index lost substantially by 91.97 per cent to 82.56 points (1027.79), S&P CNX transmission towers index fell sharply by 88.28 per cent to 141.18 points (1214.62), S&P CNX paper and paper products index lost by 87.30 per cent to 111.57 points (875.55 points) while S&P CNX finance index was down by 84.62 per cent to 159.92 points (1039.93).
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