The Union Budget announcement is an important annual event for the Indian economy. It affects almost every economic activity in the country. Moreover, a wide range of emotions are evident during the budget announcement process.
The tradeoff of equity to address all needs and equality to treat all aspects on the same levels continues. The emotions of citizens are usually reflected in the financial markets, and specifically, in the stock market.
Different investors and experts anticipate certain announcements on Budget Day. If they fail, heavy volatility is observed in the stock market. However, traders can grab the opportunity of a market pricing gap during such volatility. Long-term investors can take note of affected areas and avoid impulsive decisions.
Many such strategies can help investors and traders to effectively combat market volatility on Budget Day. Let’s explore them in detail.
Budget Day and its significance
In India, the Budget announcement date is fixed on February 1 except for the years with government transition or general elections. A budget is a document projecting the future trajectory of expenditures, revenues, allocations, policies, etc., for the upcoming financial year. It also indicates how the economy has performed in the past. Therefore, Budget Day is of high significance for almost every sector of the economy.
- Several stakeholders like country citizens, corporations, economists, international organisations, Foreign Institutional Investors (FIIs), and more are affected by the policy decisions on Budget Day.
- Financial markets and instruments fluctuate with the investor’s confidence in the Budget. Eventually, it causes high volatility in asset prices.
- The actions of the ruling government in the Budget affect the confidence of citizens in their motive towards the country’s development.
Investors and traders in the stock market can strategise their actions by understanding the significance of Budget Day.
Also, learn about Demystifying essential budget related terms
Essential preparations for Budget Day 2025
Before the Budget announcement date arrives, investors and traders can set their Budget Day schedule or strategies. Moreover, they can prepare with the following flow for the Budget Day trades or investments:
- Read news and stay informed about the expectations prevailing all around the market. Several news publications release articles, blogs and videos about the expectations of specific organisations, asset regulatory bodies, or investors. It will help tap the market sentiment.
- Assess the movement of key market indices like NIFTY 50, BSE SENSEX, etc.
- Check the concerned sectors which require important reforms and stocks related to them.
- Analyse the companies and markets in terms of technical indicators like support, resistance, historical pricing gaps, moving averages, etc.
Dos and Don’ts for the investors
| Dos | Don’ts |
| Only refer to the authentic sources for any budget-related news. | Concentrate the portfolio with budget-specific positions. |
| Keep a keen eye on government moves and previous budget commentary. | Take high-risk investments or market positions. |
| Traders should take backup positions and hedge existing positions from market shocks. | Avoid or neglect the power of informed decisions based on appropriate analysis. |
Budget Day market conditions can be temporary and taking high-risk chances in the greed of more gains can drain the investment corpus. Investors and traders should understand the power of preparation and research to execute desired trades on the day.
Budget Day trading strategies
In the process of preparation, selecting a suitable budget day trading strategy is crucial as one strategy may not suit everyone.
It is a method to take buy and sell positions in the same stock, asset type, or market. Due to such trades, the market loss is limited significantly. Moreover, investors can stay active to understand the market flow and keep a suitable position among the two. It can mainly be used for stocks related to ambiguous announcements.
The stocks of public sector units, fully or semi-owned by the government, are significantly affected on Budget Day. For example, during the announcement of the Union Budget 2024 on July 23, 2024, the NIFTY PSU Bank index volume was hyped before the Budget. However, post-budget, heavy selling pressure was observed.
Therefore, investors can analyse the market sentiment and movement near the Budget Day for PSU stocks and take suitable positions.
- Sector-specific: Agriculture, Banks and Financial companies, infrastructure
The Budget makes some important announcements regarding allocations, inflation, banks, agricultural schemes, capital expenditure, etc. Stocks related to the sectors mentioned here may be affected by such announcements. Investors can plan their trades based on their analysis.
Note: Many other sectors may be affected by the Budget announcements. These sectors are explained with a broad view.
- Event-based trades
Near the Budget date, traders may find mispricing for many stocks in the market. They may be over or under-valued, which can provide significant trading opportunities. Moreover, it will also provide varied entry and exit levels.
Even before execution of such strategies, investors should thoroughly analyse their investment objectives, comfortable sectors, risk tolerance and needs of existing portfolios.
An interesting read: Market Before, After and During the Budget
Managing market volatility on the Budget Day
Volatility is an inherent feature of the market on the budget day. Investor sentiment and strategies clash to result in high market fluctuations. Investors can combat this volatility in the following ways:
- Avoid impulsive decisions, as the volatility may settle down at the trading day end or the next business day.
- Understand the announcements, and their effects before reacting to the market volatility.
- Use tools like stop loss and place limit orders to curb the losses.
- Avoid trades and investments in case of limited risk appetite and let markets settle.
Final checklist for Budget Day 2025
The Union Budget is around the corner and the market is flooding with budget expectations for 2025 from different stakeholders.
- Analyse the existing portfolio.
- Check the immediate previous budget announcements and forecasts,
- Check the quarterly performances or overview of sectors.
- Read authentic news articles to understand the market flow and expert opinions.
- Take measures to limit the losses.
- Make suitable investments and trades based on your research.
Explore the recent Budget: How will Budget 2024 impact the common man?
Bottomline
Different stakeholders, financial markets and assets are significantly affected by the Budget announcements. Investors can prepare for Budget Day to avoid getting stuck in the volatility. Investors can select suitable strategies, research market sentiment and trade or invest according to personal suitability in the market.
FAQs
- What is the significance of Budget Day in India?
It is a crucial day for changes in the tax norms, policies, sector-specific details and economic performance of the country. Moreover, it helps the market understand the future trajectory of a country and plan investments accordingly.
- What should traders prioritise during Budget Day 2025?
Traders should try to anticipate the market movement by analysing the existing information and flow. They can check the mispriced assets and enter the gap to tap the market gains. However, placing these orders with due risk management tools can help limit the loss.
- How to strategise after the Budget announcement?
Investors should understand their existing portfolio, market sentiment and suitable risk exposure while selecting strategy for the Budget Day. Investors can focus on the sectors with significant announcements for investments. Moreover, they can analyse the quarterly performance reports for better estimations.
- How to manage the market pressure during the Budget announcement?
On Budget Day, market volatility can be very high. Investors can use tools like stop loss and limit orders to avoid heavy fluctuations. Moreover, they can execute arbitrage trades to limit the overall loss.
- Where to find the easy summary of the Budget after the announcement?
The budget summary is released officially on the government websites. Moreover, authorised new channels release summary articles, blogs and videos for better understanding.
