Impact of union budget on stock market

Topics: Stock market, Term, Time Pages: 31 (3092 words) Published: November 27, 2013
ISSN 0975 – 5942

Impact of Union Budgets on Indian Stock Market –A
Case Study of NSE
Gurcharan Singha and Salony Kansalb
a

Reader, School of Management Studies, Punjabi University, Patiala b
Junior Research Fellow, School of Management Studies, Punjabi University, Patiala

Corresponding author: guru64@gmail.com

Abstract
This paper examines the impact of Union Budgets from 1996
to 2009 on the Stock Market as represented by S&P CNX Nifty in terms of returns and volatility. The impact on S&P CNX Nifty has been studied prior to and subsequent to budget day .The periods have been segregated into short-term, medium-term, and long-term

periods. With regard to return the result proves that budgets have the maximum impact in the short term period, with some impact
extending into the medium-term and no significant impact at all on long- term average returns. With regard to volatility the result indicates that the long term period after the budget tends to be more volatile than the medium-term and the short-term periods when compared to similar long-term before the budget.

Keywords: Union budget, Stock market, NIFTY

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Introduction
The movement of share price is unpredictable in any
economy. Sudden ups and downs of the price of shares make people wonder watching. Certain factors are held responsible for the movement in share prices. In some studies micro variables like dividend per share, earning per share, company size and book value per share have got importance and in others, macro variables like bank rate of interest, index of industrial production, union budget, inflation rate and foreign currency have been highlighted. Hence annual budget is one such event which may have impact on stock market.

In India, the budget is an annual financial statement
containing the estimated receipts and 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 hands of the Government to control the economic resource of the country. It contains proposals regarding changes in tax policy industrial policy, trade policy, exchange rate policy and financial sector reforms which may have favorable or adverse impact on stock market.

Review of Literature
Keeping in view the specific objective of the study, the
reviews of earlier studies have been shown below:
Léon Konan (2008), investigates the effects of interest rates changes on the stock market returns and volatility in Korea using weekly returns on the KOSPI 200 and the NCD 91-day yield over the period from 31 January 1992 to 16 October 1998.The result indicate that interest rates have a strong positive power for stock returns, and a weak predictive power for volatility.1

Gupta and Kundu (2006) analyzed the impact of Union
Budgets on stock market considering the returns and volatility in Sensex. They found that budgets have maximum impact in shortterm post-budget period, as compared to medium term and long term average returns and volatility does not generally increase in a postbudget situation as the time period increases.2 Upadhyay (2006) examines that Foreign Institutional

Investors (FII) participation in the Indian Stock Market triggers its

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upward movements, but at the same time, increased liquidity through FII investment inflow increases volatility too. 3
Porwal and Gupta (2005) examine the hot issue of volatility
in the Indian stock markets. The study is based on a daily prices of S&P CNX Nifty for the period of 10 years .They found 1996 was the most volatile year in the past 10 years, this is due to the political instability and absence of proper regulation.4

Verma and Agarwal (2005) studies deal with an event studyusing budget as an event window for 4 years. It compares the returns on CNX nifty index prior to and subsequent to the budget to assess the impact of the event....

References: 1. Léon Konan(2008), “The Effects of Interest Rates Volatility on
Stock Returns and Volatility: Evidence from Korea,International
2. Gupta Arindam and Kundu Debashis(2006), “A Study of the
Impact of Union Budgets on Stock Prices in India”, The ICFAI
5. Verma Ashutosh Verma and Agarwal Neeti (2005), “Impact of
Budget on Stock Prices: An Event Study”, PCTE Journal of
8. Thomas Susan and Shah Ajay(2002), “Stock Market Response to
Union Budget”, Economic and Political Weekly, February, pp 455458
9. Rao S.V.D Nageswara (1997),”Impact of Macroeconomic Events
on Stock Price Behaviour”, Management and Accounting
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