How exactly budget effects the market direction?

Hello all,

This is my first year of trading and i dont know how the major announcements (like the one that everybody is now talking about, i.e. budget) will effect the market volatality and direction.

Thanks in advance.

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Budget is an event where the ministry of finance discusses the country’s finances in detail. The finance minister on behalf of the ministry makes the presentation to the entire country.The reason why this is important and is because major policy announcement which has an effect on various industries are announced.

For example, the budget this time around, the duties on cigarette is expected to increase…which means the cost of a cigarette is going to be high. This has few implications…

  1. Increased prices may discourage smokers from buying cigarette (I personally don’t believe this will happen…but market do not factor person opinions :-)) hence the profitability of ITC may decrease therefore traders may want to sell ITC.

  2. Because ITC is a Index heavy weight it will impact the market as a whole and the market may come down.

In fact as I write this, ITC is down 3.5% for this precise reason.

Budget also includes industry specific incentives…for example Govt may decide to abolish certain taxes…for example STT. This means traders will have a better edge trading and will attract more and more traders to the markets thereby increasing the market liquidity…hence a positive to stock markets.

Budget also includes reforms on personal income tax…if they decide to increase the bar on tax free amount a person can earm… then the govt is essentially giving more free cash in the hands of the consumer and therefore he could spend that money on things like white goods, FMCG, real estate etc. Hence this incentive is good for companies dealing in these sectors.

The list can go on…but I hope this gives you few thought starters as to why budget is important.


Thank you so much Sir. Your quick reply is highly appreciated… :slight_smile:

Hope we pay lesser taxes this year. :slight_smile:

Hope so too !