An Event Study Analysis of Union Budget Announcement on Broad and Sectoral Indices of Indian Stock Market

Expectations of the markets are always perceived to be rational in nature. These expectations are a result of cumulative experiences of market participants who are expected to foresee the near term changes in political and economic scenarios in the country and outside the country. One such rational decision making scenario is when a clue regarding future vision of the country are laid down by the finance ministers in the form of a Union Budget. Announcements of various reform measures by either the existing governments in power for long periods or by any new governments in power depends upon the economic scenario of that country, and reflects the areas which needs immediate emphasis. The study thus reflects upon the perceptions of the markets especially considering the broader market and sectoral markets towards the announcements of budget by finance ministers from period 1993 to 2014. More than 600 event studies were conducted across 27 indices in the study. The results obtained infer that Budget announcement has no significant impact on the broader and sectoral indices over the years and trading strategies cannot be adopted by investors in making investment decisions during this shorter time frames as markets correct themselves to any future expectations from the budget as time passes.