InvestorQ : How does the Union Budget affect the stock market sentiment?
Anjali Desai made post

How does the Union Budget affect the stock market sentiment?

1 year ago
The Union Budget announcement by the Indian Finance Minister is one of the most important events that affect the Indian stock markets. If the overall consensus around the Union Budget is positive, the stock market sentiment is expected to be positive, and if not, the investor sentiments can negatively affect the stock market.

The Union Budget, when announced, hugely impacts the Indian economy and the prevailing interest rates. In the Union Budget, the Finance Minister announces how the government is going to invest the available funds, which affects the fiscal deficit (the difference between total revenue and total expenditure of the government) of the country.

In turn, the effect on the fiscal deficit influences the overall money supply in the economy and thereby the interest rates. If the interest rates are high, it increases the capital cost of the industry, lowering the profits earned. When this happens, investor sentiments for that particular industry turn negative and can lower the stock prices of companies related to the industry.
For example, if the government increases the direct taxes in the Union Budget, the disposable income of Indian citizens will decrease, leaving them with less money to buy goods and services. This lowers the demand and results in lesser profits for a company. When the profits are less, it is more than likely that the share price will fall.

Hence, it is important that the Union Budget provides financial benefits to common citizens and specific industries to impact the economy positively. When this happens, the investor sentiments are positive, and the stock market thrives.