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Strategizing for the Indian Stock Market and Macro Environment Ahead of Budget 2024

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Most traders know that a budget can be a significant event for the Indian stock market. However, often they don’t know how to strategize for it. It’s not so difficult after all! At Bajaj Broking, we believe that #BudgetSimpleHai! Therefore, in this blog, we’ll simplify how you should strategize for the Union Budget 2024.

Strategizing for a budget starts with understanding macro factors that can affect the equity market the most. As per many experts, the focus areas of the upcoming budget are likely to be “fiscal prudence,” “capital expenditure to help create employment,” and “capital expenditure for the social sector.”

When Finance Minister Ms. Nirmala Sitharaman presents the budget, she’s likely to retain the fiscal deficit target of 5.1% of GDP. She’s also expected to improve spending on the physical, digital, and social infrastructure of the country.

If the government manages to retain the fiscal deficit within the target number, it is likely to be a positive move for the economy and the stock market. This is because any significant variation in the government’s spending or revenue can result in wild swings in the equity market. For now, that’s unlikely to happen.

If the government increases spending on the social sector, it will benefit the rural sector and provide more money for people to spend. This may give a boost to consumption and also to the stock market. So, if you’re an investor, you should watch out for consumption-led and infrastructure-driven stocks.

Having understood how to create a macro strategy for the budget, let’s delve deeper into this topic.

#BudgetSimpleHai

To simplify this year's Budget and its impact on your life and investments, we bring you #BudgetSimpleHai!

Visit our website or follow our social handles for live updates on the Union Budget. Read in-depth reports, watch videos, and understand what's in store.

Kyunki Bajaj Broking ke saath, #BudgetSimpleHai!

Key Factors Influencing the Market Pre-Budget

Macro factors that are affecting the market pre-budget are:

  1. Fiscal deficit: This is one of the most important factors impacting the market before the budget. Most experts think that the budget will retain the fiscal deficit target of 5.1% of GDP. As the fiscal deficit seems to be under control, the market has moved up in the last month.

  2. Expectations from the budget: Needless to say, budget-related expectations drive the stock market. It seems that Ms. Sitharaman will present a growth-oriented budget. Sectors like infrastructure, consumer durables, automobiles, and banking may get a boost.

  3. Inflation: While inflation has moderated a bit in the last few months, still it remains reasonably high. Food inflation has also been on the higher side. Due to this, the budget may announce some tax relief for the salaried class. However, it is believed that the stock market has already factored in such expectations. 

Historical Market Reactions to Union Budgets

If we analyse how the stock market has reacted to union budgets historically, we’ll be able to get interesting findings:

  1. The analysis shows that the stock market declines 2 out of 3 times in the 30-days period after the budget. This shows that the probability of the market falling after a budget is higher than the probability of it rising.

  2. The likelihood that the market will fall rises to a whopping 80% if it has increased in the 30-day period before the budget.

  3. As the stock market has risen in the last one month, it seems that it may fall after the announcement of the Union Budget on July 23.

  4. In the last 30 years, it has happened only twice that the stock market in India was up both before and after the Union Budget.

Risk Management Techniques for Volatile Periods

If you’re a risk-averse investor, you should follow these strategies during budget time:

  1.  Volatility in the stock market tends to be high just before the budget and just after the budget. This is because uncertainty about the impact of a budget is very high in this period.

  2. To avoid the risk of such volatility, you should not do too much in this period. This means that you should neither buy too much nor sell too much 2-3 days before the budget and 2-3 days after the budget.

  3. When volatility around the budget day is very high and you still want to trade, you should use stop-loss orders, which will help you limit your losses.

Conclusion

If you are a stock investor, you’d have understood by now how to create a macro strategy for Union Budget 2024. In a nutshell, you need to see what the finance minister announces regarding the fiscal deficit, infrastructure, social welfare spending, and tax relief measures.

Announcements related to these factors are expected to impact the stock market the most. The sectors most likely to be positively impacted are infrastructure, automobiles, banking, and consumer durables.

In case you want to read in detail about fiscal policy in the context of budget, read here.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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Frequently Asked Questions

How can investors prepare for potential market volatility ahead of Budget 2024?

Answer Field

Investors can prepare for market volatility ahead of Budget 2024 by first understanding which factors are driving the volatility and then finding which sectors are going to be the most affected by the budget.

What are the main economic indicators to monitor before the budget announcement?

Answer Field

To create a macro strategy, investors should focus on these indicators before the budget announcement: fiscal deficit, inflation, and expected GDP growth.

Which sectors are likely to be impacted the most by Budget 2024?

Answer Field

The budget is expected to give a boost to infrastructure and consumer spending. Hence, the sectors that are likely to be the most positively impacted are infrastructure, consumer durables, automobiles, and banking.

How do historical budget announcements affect the Indian stock market?

Answer Field

Historically, the volatility in the stock market tends to be high after the announcement of the budget for the next few days. In the long run, the direction of the stock market is a function of many factors, like corporate growth rate, inflation, general economic conditions, etc. Hence, a budget alone doesn’t impact the stock market.

What are the best investment strategies for uncertain economic conditions?

Answer Field

If you are a risk-averse investor, the best thing to do is let the moments of uncertainty pass. When uncertainty is high, you should neither buy nor sell too much. However, if you still want to buy and sell a lot amidst uncertainty, use stop-loss orders to minimise your losses.

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