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Impact of the Union Budget on the Indian Stock Market​​​​​​​

The country reacted with mixed emotions to the Union Budget 2022, announced by the Finance Minister, Nirmala Sitharaman on February 1, 2022. There were several announcements on tax, 5G, digital currencies, infrastructure, agriculture, education, and more, with some gainers and some losers. 


Budget announcements can also have quite an impact on the stock markets. In the last ten years, the stock markets have reacted differently to each budget announcement, having cheered only four times. However, this year, the budget clearly won over the markets. We uncover how the stock markets responded to Union Budget 2022. 


Sensex rose to 848 points, while Nifty ended at 17,600
On Tuesday morning, the day of the budget, S&P BSE Sensex and Nifty 50 opened at 0.8% higher. During the course of the finance minister's speech, both indices jumped. The Sensex rose to 848.40 points and settled at 58,862.57. On the other hand, Nifty 50 jumped 237 points and ended the day at 17,576.85. Sensex hit a high of 59,032.20 or over 1,000 points, while Nifty 50 rolled close to 300 points and touched 17,622.40. 


The BSE mid-cap index ended at a gain of 1%, and the BSE small-cap index closed at 0.9% higher. The volatility index and India VIX ended below the 20-mark, lower by 9%.
  
Union Budget 2022: Impact on stocks
Budget 2022 is orientated towards infrastructure and growth, and its impact was quite evident on the rising stocks. Here are some highlights: 


  • With significant gains in stocks like pharma, metal and capital goods, Sensex rose by 600 points in the opening trade. Sensex stocks like Tata Steel surged over 7.2% and Sun Pharma over 6.7%, with L&T and Infosys taking over almost half of the Sensex gains. 
  • With cuts on customs duties and incentivised exports, textile stocks jumped post the budget announcement. The highest gains were recorded in Pharma, FMCG, metals, IT, and realty stocks. However, auto and oil, and gas stocks dropped. 
  • Finance Minister, Nirmala Sitharaman announced in her speech that 68% of the defence sectors capital would be allocated to local industries, a 10% jump from the current 58%. As a result, defence stocks rose by 5% in trade on Tuesday, after the government's announcement to reserve the defence budget for local industries in an attempt to boost Aatmanirbhar Bharat. 
  • Sugar stocks surged post the announcement of extra excise duty on unblended fuel. Applicable from 1 October 2022, an additional excise duty of Rs. 2 per litre will be charged on unblended fuel. This, in turn, is likely to create demand for ethanol blending and benefit sugar companies. 
  • Infra stocks also gained with the announcement of an allocation of Rs. 7.5 lakh crore for capital expenditure for FY 2022-23. This is 35.4% higher than Rs. 5.54 lakh crore last year. 
  • Banking stocks witnessed strength as before. 
  • Post the announcement of 400 new Vande Bharat trains to be launched in the next three years, railway stocks also gained significantly. IRCTC stocks were up by 3.7%, IRCON international stocks by 2%, IRFC stocks by 1%, and Rail Vikas Nigam stocks by 4%.  

 
Union Budget 2022: Failures 
While the markets smiled, there were also some failures. Bharti Airtel, BPCL, IOC, M&M, PowerGrid, Tata Motors and Reliance stocks were among the those who saw drops. A higher fiscal deficit also contributed to a bond yields surge of 15-20 bps, and treasury gains were negatively wedged for PSU banks. 
 
Click here to read more on Union Budget announcements regarding digital assets


*The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
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