Vol.6, No.

3, July-September 2017

Impact of Union Budgets on Indian Stock Markets : A Study

– Dr. Shakeel Ahmad*
– Prof Mohd Akbar Ali Khan**

Abstract
The budget is annual financial statement containing the estimated receipts expenditure of
the firms, industry or a country. A budget is a powerful tool in the hand of the government to
control the economic resource of the country. The objectives of the study is to analyze the effect
of announcement of budget on NIFTY returns in the pre-budget and post- budget period& analyze
and compare the volatility i.e. variance of daily returns in the stock market for short term (3 days),
medium term (15 days) & long term (30 days) in pre-budget and post- budget period. The daily
closing prices of NIFTY & SENSEX index have been collected from the yahoo finance website for
a period from 2010 to 2016. Statistical tools like variance, standard deviation, t test and f tests are
used to for to analyze the data. From the analysis it is observed that the budget has more effect in
short term, less in medium term and it diminishes in the long term after the budget announcement.
Keywords: Budget, nifty, sensex, returns, t test, f test

Introduction
In India, the budget is an Annual financial statement containing the estimated receipts expenditure
of the government of India, which has to be laid before parliament in respect of every financial year,
which runs from 1st April to 31st March under article 112 of the constitution. A budget is a powerful
tool in the hand of the government to control the economic resource of the country. The budget has
traditionally been an important part of the financial year and to the Economy. The budget impacts the
economy, the stock markets and interest rates. The budget announcement by the finance minister
includes investing and spending money. The government plans what they except to do in the future
year. And what had happened in the last year. The deficit occurred in last year, which will influence the
liquidity and the interest rates. High interest rates will lead to higher cost of capital, lower profits for
companies and also it affects the stock prices. For instance, an increase in direct taxes would decrease
disposable income, thus reducing demand for goods. This decrease in demand will translate into a
decrease in production, therefore affecting economic growth.

* Pro-Vice-Chancellor, Maulana Azad National Urdu University, (A Central University), Hyderabad,

Email : shakeel_du@yahoo.co.in
** Professor & Additional Director, DDE, Maulana Azad National Urdu University, (A Central University), Hyderabad
and Former Vice Chancellor, Telangana University, Former Dean & HOD, Department of Commerce, Osmania
University, Telangana. Email : maakhan1155@gmail.com

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Nifty 50
The NIFTY 50 index is National Stock Exchange of India's benchmark stock market index for
Indian equity market. Nifty is owned and managed by India Index Services and Products (IISL),
which is a wholly owned subsidiary of the NSE Strategic Investment Corporation Limited. IISL had
marketing and licensing agreement with Standard & Poor's for co-branding equity indices until 2013.
The NIFTY 50 covers 22 sectors of the Indian economy and offers investment managers
exposure to the Indian market in one portfolio. During 2008-12, NIFTY 50 50 Index share of NSE to
29% due to the rise of sectorial indices like NIFTY Bank, NIFTY IT, NIFTY Next 50, etc. The NIFTY
50 Index gives 29.70% weightage to financial services, 0.73% weightage to industrial manufacturing
and nil weightage to agricultural sector.

Sensex
The S&P BSE SENSEX (S&P Bombay Stock Exchange Sensitive Index), also-called the BSE
30 or simply the SENSEX, is a free-float market-weighted stock market index of 30 well-established
and financially sound companies listed on Bombay Stock Exchange. The 30 component companies
which are some of the largest and most actively traded stocks, are representative of various industrial
sectors of the Indian economy. Published since 1 January 1986, the S&P BSE SENSEX is regarded as
the pulse of the domestic stock markets in India.

Review of Literature
P.Varadharajan et al (2011) The stock market is witnessing heightened activities and is
increasingly gaining importance. In the current context of globalization and the subsequent integration
of the global markets this paper captures the trends, similarities and patterns in the activities and
movements of the Indian Stock Market from 2002 to 2011. This paper explores the impact of budget
on stock market volatility and analyses how returns vary with it. Another important analysis done is to
find the volatility of different months for a period of ten years for four major indices in India. The main
aim is to help investors gain knowledge about volatility present in different months, thereby they can
invest cautiously. Thus, this study helps the investors to minimize their overall risk and maximize the
return of their investment over any period of time.
SisiraKanti Mishra (2015) With the budget timings coinciding with the market and with the
whole world gazing at it with great interest and the ensuing media hype, markets have started reacting
to budgets on a real time basis. The growth of technology has added to the cause in a great way. The
Union budget creates enormous market volatility and turnover in the stock market prior to budget as
different expectations prevails with respect to taxes impact on individuals, companies and overall
economy. After the budget announcement also volatility continues as Market movers such as FIIS,
DIIS, Mutual Funds, Retail Investors, and others adjust their portfolios as per the budget impacts.

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SisiraKanti Mishra (2015)With the budget timings coinciding with the market and with the
whole world gazing at it with great interest and the ensuing media hype, markets have started reacting
to budgets on a real time basis. The growth of technology has added to the cause in a great way. The
Union budget creates enormous market volatility and turnover in the stock market prior to budget as
different expectations prevails with respect to taxes impact on individuals, companies and overall
economy. After the budget announcement also volatility continues as Market movers such as FIIS,
DIIS, Mutual Funds, Retail Investors, and others adjust their portfolios as per the budget impacts.
Vadalisri ram datta et al (2015) in their studyfocused on the event of budget impact on
Indian markets, the analysis period has been considered from 2004-05 to 2013-14. Augmented dickey
fuller test has been applied for the stationery of the data. Budget is considered as one of the major
economic event which takes place every year. The direction of the Indian economy will be drafted by
the Government of India through Union Budget. Volatility of the equity market was observed high
during the speech time of budget in parliament. Sharpe differential Measure indicated that the
performance of markets were better after the budget announcement. Regression weight estimation
initiated that Indian growth is influenced by the fiscal deficit. This analysis is useful for the equity
investors namely DII, FII, regulators, MF managers, etc…

Objectives of Study
The objectives of the study include the following:
1. To analyze the effect of announcement of budget on NIFTY returns in the pre-budget and post-
budget period.
2. To analyze and compare the volatility i.e. variance of daily returns in the stock market for short
term (3 days), medium term (15 days) & long term (30 days) in pre-budget and post- budget
period.

Hypothesis
The following hypotheses have been framed:
H0: There is no significant impact of budget on NIFTY returns.
H1: The difference in the volatility when comparing all the post budget periods with long term
pre budget period for Nifty Index, is insignificant.
H2: Volatility in short term period (3 days) is more than medium (10 days) & long term period
(30 days) during post-budget session.

Scope of the Study

The analysis has been emphasizing to measure the volatility, average returns and impact of

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budget. For this analysis 8 budgets session were considered that is 2010 - 2016 year including one
interim budget announcement.

Research methodology
The daily closing prices of NIFTY & SENSEX index have been collected from the yahoo
finance website for a period from 2010 to 2016 which includes a total of 7 Union Budgets and 1
Interim Budget. The time period of the study has been classified into pre-budget and post budget
period. A total of 60 trading days' data around the budget period has been taken. The event window is
divided into short term (3 days), medium term (15 days), long term (30 days) before and after the
declaration of the union budget.
The secondary data have been analyzed using the following statistical tools:
• First, the logarithmic daily returns have been found over the previous day's closing value during
the entire 5 year period.
• Second, the average returns in pre-budget and post-budget period, during the previous and the
next 3, 10 and 30 days are calculated.
The Return is calculated using logarithmic method as follows.
Rt = log (Pt/ Pt-1)
Rt = Market return at the period t
Pt = Closing Price of index at day t
Pt-1 =Closing Price of index at day t-1
log = Natural log
• Third, the standard deviation and variances during the previous and next 3, 10,and 30 days of
the budget is calculated.
• After this, the statistical tools, a paired T-test using SPSS have been applied on average returns.
• F-test has been applied over the variability of returns of SENSEX and NIFTY over different
periods.
The test statistic F is calculated as follows:
F=(X1) 2 /  (Y1) 2 ,
Where:  (X1) ^2 =  (Rx1 - RX1 ) ^2 / (n1 -1)
 (Y1) ^2=  (Ry1 - Ry1 ) ^2 / (n2-1)
Here, X1, Y1 are two sample time periods, and  (X1)^2 and  (Y1)^2 being the sample return
variances and n1 and n2 being their respective number of observations.

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Data Analysis
Table 1 : Daily Average Return in Nifty Index
X3 X2 X1 Z Y1 Y2 Y3
YEAR DATE LAST 30 LAST 15 LAST 3 BUDGET NEXT 3 NEST 15 NEXT 30
DAYS DAYS DAYS DAY DAYS DAYS DAYS
2010 26/2/2010 -0.22 -0.09 0.02 1.29 1.06 0.38 0.23
2011 28/2/2011 -0.21 -0.1 -1.01 0.56 1.27 0.05 0.28
2012 16/3/2012 0.1 -0.12 0.14 -1.16 0.3 -0.1 -0.04
2013 28/2/2013 -0.11 -0.18 -0.3 -1.79 0.16 -0.03 -0.09
INTERIM 17/2/2014 -0.09 -0.23 -0.07 0.41 0.1 0.47 0.36
2014
2014 10/7/2014 0.12 0.03 -0.72 -0.23 -0.18 0.03 0.15
2015 27/2/2015 0.15 -0.03 -0.27 1.85 0.3 -0.22 -0.09
2016 29/2/2016 -0.22 -0.41 -0.37 -0.61 2.28 0.67 0.42

Table 2 : Daily Average Return in Sensex Index

X3 X2 X1 Z Y1 Y2 Y3
YEAR DATE LAST 30 LAST 15 LAST 3 BUDGET NEXT 3 NEST 15 NEXT 30
DAYS DAYS DAYS DAY DAYS DAYS DAYS
2010 26/2/2010 -0.22 -0.09 0.04 1.08 1.09 0.39 0.24
2011 28/2/2011 -0.26 -0.11 -1.09 0.69 1.24 0.07 0.34
2012 16/3/2012 0.1 -0.17 0.17 -1.19 0.26 -0.08 -0.03
2013 28/2/2013 -0.11 -0.17 -0.28 -1.52 0.5 -0.02 -0.09
INTERIM 17/2/2014 -0.08 -0.24 0.01 0.48 0.12 0.43 0.33
2014
2014 10/7/2014 0.12 0.06 -0.66 -0.28 -0.19 0.03 0.14
2015 27/2/2015 0.08 -0.02 -0.26 1.65 0.19 -0.22 -0.02
2016 29/2/2016 -0.22 -0.4 -0.36 -0.66 2.28 0.65 0.39

Interpretation
Table 1 and Table 2 represent the average daily returns given by NIFTY, SENSEX and during
various periods around the budget. The estimates indicate that an individual budget has maximum
impact (positive or negative) in the short-term(3 days post budget),which diminishes in the medium-
term(15 days post budget) and further reduces in the long-term (30 days post budget) in comparison
to the pre-budget period.
In the short-term, except in 2014 there are all cases of positive post-budget returns seen in both
Nifty and Sensex. Similarly similar effect was seen in medium and long term. In 2014 (union budget),
as there was a change in the government of the country, and budget was made in the favor of
investors. The announcements made in the Budget were positive, e.g. the increase in investment limits
in FDI (foreign direct investment) announced were favorable for the economy. The long term returns

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in pre- budget and post- budget period were almost same and the budget didn't have a major impact on
the returns. This shows that budget have no significant effect in the long run.
Table 3 : Shows Paired t-test for Nifty Index

X3& Z X2 & Z X1& Z Y1&Z Y2&Z Y3&Z

ACTUAL -0.23 -0.43 -0.78 1.23 0.27 0.26
TABLE
VALUE (5%) 2.37 2.37 2.37 2.37 2.37 2.37
Table 4: Shows Paired t-test for Sensex Index

X3& Z X2 & Z X1& Z Y1&Z Y2&Z Y3&Z

ACTUAL -0.26 -0.46 -0.77 1.31 0.31 0.34
TABLE
VALUE (5%) 2.37 2.37 2.37 2.37 2.37 2.37
Table 5 : Impact of Budget on Nifty
SHORT TERM PERIOD MEDIUM TERM PERIOD LONG TERM PERIOD
X3& Y1 X2 & Y1 X1& Y1 X3& Y2 X2 & Y2 X1& Y2 X3& Y3 X2 & Y3 X1& Y3
ACTUAL -2.18 -2.5 -2.9 -1.38 -2 -3 -1.75 -2.64 -2.82
TABLE 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37
VALUE
(5%)
TABLE 6:- Impact of Budget on SENSEX
SHORT TERM PERIOD MEDIUM TERM PERIOD LONG TERM PERIOD
X3& Y1 X2 & Y1 X1& Y1 X3& Y2 X2 & Y2 X1& Y2 X3& Y3 X2 & Y3 X1& Y3
ACTUAL -2.29 -2.58 -2.83 -1.57 -5.87 -0.77 -2.16 -3.09 -2.61
TABLE 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37
VALUE
(5%)

Interpretation
30 DAYS
A paired sample t test has been conducted to evaluate whether a statistically significant difference
exist between the returns of 30 days pre-budget and post-budget period. The result of the paired
sample t test were not significant, indicating that there is a significant increase in the returns from the
pre-budget period to the post-budget period. The research retained the null hypothesis. The analysis
has accepted the null hypothesis H0, so there is no impact of budget on the returns of long term period
in CNX NIFTY and SENSEX.

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15 DAYS
A paired sample t test has been conducted to evaluate whether a statistically significant difference
exist between the returns of 15 days pre-budget and post-budget period. The result of the paired
sample t test were not significant, indicating that there is a significant increase in the returns from the
pre-budgetperiodto the post-budget period. The research retained the null hypothesis. There is no
significant impact of budget on the returns of medium term period as the analysis has accepted the null
hypothesis H0.
3 DAYS
A paired sample t test has been conducted to evaluate whether a statistically significant difference
exist between the returns of 3 Days pre-budget and post-budget period in CNX NIFTY returns. The
result of the paired sample t test were not significant, indicating that there is a significant increase in
the returns from the pre-budget period to the post-budget period The research retained the null
hypothesis. The null hypothesis H0 has been accepted by the research so there is no significant impact
of budget on the returns in short term period of CNX NIFTY.
Table 7:- Variance of Returns in Nifty Index

X3 X2 X1 Y1 Y2 Y3
LAST 30 LAST 15 LAST 3 NEXT 3 NEST 15 NEXT 30
YEAR DATE DAYS DAYS DAYS DAYS DAYS DAYS
2010 26/2/2010 0.01 0.01 0.00 0.01 0.01 0.01
2011 28/2/2011 0.02 0.02 0.04 0.04 0.02 0.01
2012 16/3/2012 0.01 0.02 0.02 0.02 0.02 0.01
2013 28/2/2013 0.01 0.01 0.01 0.00 0.02 0.01
INTERIM
0.01 0.01 0.01 0.01 0.01 0.01
2014 17/2/2014
2014 10/7/2014 0.01 0.01 0.02 0.01 0.01 0.01
2015 27/2/2015 0.01 0.01 0.00 0.01 0.01 0.01
2016 29/2/2016 0.02 0.02 0.01 0.01 0.01 0.01

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Table 8: Variance of Returns in Sensex Index

X3 X2 X1 Y1 Y2 Y3
LAST 30 LAST 15 LAST 3 NEXT 3 NEST 15 NEXT 30
YEAR DATE DAYS DAYS DAYS DAYS DAYS DAYS
2010 26/2/2010 0.01 0.01 0.01 0.01 0.01 0.001
2011 28/2/2011 0.02 0.02 0.03 0.03 0.06 0.01
2012 16/3/2012 0.01 0.01 0.01 0.01 0.01 0.01
2013 28/2/2013 0.01 0.01 0.01 0.07 0.01 0.01
INTERIM
17/2/2014 0.01 0.01 0.01 0.01 0.01 0.01
2014
2014 10/7/2014 0.01 0.01 0.02 0.01 0.01 0.01
2015 27/2/2015 0.01 0.01 0.01 0.01 0.01 0.01
2016 29/2/2016 0.01 0.02 0.01 0.01 0.01 0.01

Interpretation
Table 7 and Table 8 represent the variance of returns in CNX NIFTY & SENSEX. A cursory
glance at it shows decreased volatility over the long term compared to the medium term and short term
in pre-budget period and also a decreased volatility over the long term compared to the medium term
and the short term in post-budget period in most of the cases. It implies that volatility & its impact
always reduces as we look forward to the long term.
Table 9: F-test Results Comparing Variance among the Returns (Post-Budget) of NIFTY with One
Another

ACTUAL TABLE ACTUAL TABLE ACTUAL TBLE

YEAR VALUES VALUE VALUES VALUE VALUES VALUE
Y1 & Y2 Y2 & Y3 Y3 & Y1
2010 2.02 3.74 1.02 2.31 1.98 3.32
2011 2.11 3.74 1.40 2.05 2.96 3.32
2012 1.09 3.74 1.50 2.05 1.64 3.32
2013 22.43 19.42 1.43 2.05 15.71 19.46
INTERIM
1.55 3.74 1.48 2.05 2.29 3.32
2014
2014 1.96 3.74 1.19 2.05 2.33 3.32
2015 1.37 3.74 1.14 2.31 1.21 3.32
2016 1.22 19.42 1.02 2.31 1.24 19.46

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Table 10: F-test Results Comparing Variance Among the Returns

ACTUAL TABLE ACTUAL TABLE ACTUAL TABLE
YEAR VALUES VALUE VALUES VALUE VALUES VALUE
Y1 & Y2 Y2 & Y3 Y3 & Y1
2010 2.4 3.74 1.09 2.31 2.2 3.32
2011 1.67 19.42 5.71 2.05 3.43 3.32
2012 1.15 3.74 1.46 2.05 1.69 3.32
2013 8.25 3.74 1.04 2.05 8.57 3.32
INTERIM
1.41 3.74 1.53 2.05 2.16 3.32
2014
2014 1.77 3.74 1.19 2.05 2.11 3.32
2015 1.14 19.42 1.09 2.31 1.23 19.46
2016 1.23 19.42 1.03 2.31 1.27 19.46
Interpretation
The findings of Table 7 & 8 have been further statistically tested by F-test. Table 9 &10 reveals
F-test values for the test that compare the variance among the returns during short-term, medium-
term and long-term period after the budget with one another. All the results are non-significant which
shows that volatility does not generally increase in a post-budget situation as time period increases. As
volatility in short-term period is more than medium & long term period during post-budget session, so
this test have retained the H2 hypothesis.
Table 11: F-test Results Comparing Variance Among the Returns During Post-Budget Periods with
Long-Term Pre-Budget Period of NIFTY
ACTUAL TABLE ACTUAL TABLE ACTUAL TBLE
YEAR VALUES VALUE VALUES VALUE VALUES VALUE
X3 & Y1 X3 & Y2 X3 & Y3
2010 1.23 19.46 2.48 2.31 2.44 1.86
2011 2.26 3.32 1.08 2.05 1.30 1.86
2012 1.54 3.32 1.42 2.05 1.06 1.86
2013 4.71 19.46 4.76 2.05 3.33 1.86
INTERIM
1.54 3.32 1.00 2.31 1.48 1.86
2014
2014 1.67 3.32 1.18 2.31 1.40 1.86
2015 1.42 3.32 1.04 2.05 1.48 1.86
2016 1.84 19.46 1.51 2.31 1.48 1.86

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Table 12:- F-test Results Comparing Variance Among the Returns During Post-Budget Periods with
Long-Term Pre-Budget Period of SENSEX
ACTUAL TABLE ACTUAL TABLE ACTUAL TABLE
YEAR VALUES VALUE VALUES VALUE VALUES VALUE
X3 & Y1 X3 & Y2 X3 & Y3
2010 1.05 19.46 2.51 2.31 2.30 1.86
2011 2.22 3.32 3.70 2.05 1.54 1.86
2012 1.59 3.32 1.38 2.05 1.06 1.86
2013 18.56 3.32 2.25 2.05 2.17 1.86
INTERIM
1.34 3.32 1.05 2.31 1.61 1.86
2014
2014 1.47 3.32 1.21 2.31 1.44 1.86
2015 1.07 3.32 1.21 2.05 1.31 1.86
2016 1.75 19.46 1.42 2.31 1.38 1.86

Interpretation
Table 11 and Table 12 show specifically the F-test values that compares the variances of returns
during short-term, medium-term and long-term post budget periods with that of the long-term pre-
budget period.
It indicates that in 2013 medium term and long term period after the budget were more volatile
when compared to similar long term period before the budget. The results are not significant for other
years that show the volatility does not generally increase after budget.
So this test has retained the H1 hypotheses as there is no significant difference among the
volatility in post budget periods when compared to long term pre budget period.

Summary & Conclusion

The results show that budget does not have a significant impact on the CNX NIFTY. After
using the paired T- Test, we found that the impact of budget on average returns is not significant
whether in pre or post budget period, for short term, medium term & long term.
The results of F-Test on the variances of returns reveal that short term and medium term period
were more volatile than the long term period when compared to similar long term period before the
budget, in just one case, but mainly there is no significant difference. So this proves our H1 hypotheses
correct.
It was also seen that the budget has more effect in short term, less in medium term and it
diminishes in the long term after the budget announcement retaining the H2 hypothesis. 35 So, the

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investors should invest more cautiously around the budget day as volatility in the market is high in
short term during the budget announcement days. As a speculator by making investment strategies one
can earn extra profits during this time. For the government and regulators, when markets are more
volatile they should monitor the market movements on a real time basis and take corrective measures.

References
1. Dr. DivyaVermaGakhar (2015) "Impact Of Union Budget On Indian Stock Market." <http://
scholedge.org/manuscript/2/17/62/ARTICLE3SIJMDNOVEMBER_2015.pdf>
2. http://papers.ssrn.com
3. S&P BSE SENSEX historical prices <https://in.finance.yahoo.com/q/hp?s=%5EBSESN>
4. NSE NIFTY 50historical prices https://in.finance.yahoo.com/q/hp?s=%5ENSEI
5. Singhvi, Abha (2014). Impact of Union Budget on NIFTY. Pacific Business Review International,
Volume 6, Issue 12.
6. Chakradhara, Panda (2008). Do Interest Rates Matter for Stock Markets? Economic & Political Weekly,
Volume 43, 17, 107-115.
7. www.investopedia.com
8. https://en.wikipedia.org/wiki/Budget

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