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Wednesday
Feb 28 2001
| Updated
0909 hrs IST
2239 EST
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Where will the Sensex go today?
Rishi Chopra
HOW will the Sensex behave this time on Budget day? The question will be on everyone's minds when Yashwant Sinha would present his fourth Budget on Wednesday. The Sensex was up on three occasions post Budget in 1996, 1997 and 1999 while in 1995, 1998 and 2000 the Sensex reacted unfavourably to the Budget.
The odds for either a rise or fall appear evenly poised looking at the events after the last six Budgets.
While the rise and fall of the Sensex in the immediate post Budget session can be said to be a knee-jerk reaction, what really matters is the movement of the Sensex in the one month after the presentation of the Budget to know the actual effect on the stockmarket.
Interestingly, in five out of the last six years, the Sensex has ended in negative territory in the one-month post Budget period!
The worst fall of 294 points post Budget was was in 2000, when Yashwant Sinha presented his third Budget on February 29, 2000. The fall was mainly prompted by the withdrawal of the Sec 80HHE , which gave tax exemption for export profits and the doubling of tax rate on dividend distribution from 10 to 20 per cent.
Most of the damage was undone the next day when the Sensex rose 195 points after the market realised that companies situated in EPZ/STP would still continue to enjoy tax holiday under Sec 10 A/ 10B. However, the Sensex ended up losing 11 per cent over the one-month period post Budget.
While the 2000 Budget was a washout, the year before that, on February 27, 1999 saw the Sensex soaring 165 points to close at 3400 when Sinha unveiled his second Budget.
Sinha's acceptance of the Deepak Parekh Committee's recommendation on reviving the UTI's flagship scheme US-64 including removal of tax on dividend distribution on mutual funds and reduction in capital gains tax to 10 per cent came as a shot in the arm for the secondary market. Post-Budget, the market gained 10 per cent over the next one-month.
The stockmarkets turned distinctly weak during the post-Budget session in response to Yashwant Sinha's maiden Budget on June 1, 1998, as it failed to meet market expectations.
It fell by 44 points followed by a heavy slide for the next couple of days The absence of any observation on buy-back of shares and rationalisation of capital gains for domestic investors disappointed the market fraternity causing the Sensex to lose 11 per cent in the next one month.
What will always be remembered is P Chidambaram's 'dream Budget' presented on February 28, 1997. The markets reacted favourably to it, rising smartly by 177 points post Budget.
Various incentives such as permission to foreign institutional investors to hold up to 30 per cent in any company, abolition of surcharge of 7.5 per cent on corporate tax, cut in corporate tax from 40 per cent to 35 per cent sent the Sensex zooming.
However, the market was largely disappointed by Chidambaram's first Budget presented a year before on July 22, 1996. Although, the Sensex rose by 20 points post Budget, it fell by 144 points the next day. The main proposal which prompted FIIs to press the sales button was the permission to companies to issue non-voting shares.
Finally, going back to 1995, when Manmohan Singh presented his fifth Budget on March 15, 1995, the Sensex fell by 88 points in the Budget session to close at 3,399 followed by a fall of 119 points the next day too. The Budget was largely lacklustre because of the impending Lok Sabha polls, with the government took care to avoid doing anything that could possibly antagonise the people.
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