Sensex sheds 10% in biggest post-Budget fall

The markets have posted the biggest ever post-Budget fall with the BSE Sensex and S&P CNX Nifty declining by over 10 per cent within a week of its presentation in Parliament.

In absolute terms, the 30-scrip Sensex has decline by 1,850 points and the 50-share Nifty sunk by 510 points.

Ironically, the markets had reacted sharply last year too when the Sensex declined by 900 points on global meltdown and Budget proposals to increase dividend distribution tax as well as education cess.

This was the third time under P Chidambaram as the Finance Minister that the markets have posted big declines. Chidambaram presented his first Budget on June 22, 1996 only to see the markets tank over 9 per cent a weak after the presentation.

The pro-poor Budget of 1996 introduced the minimum alternate tax (MAT) on companies and the markets took it seriously.

The current post-Budget decline is attributed, apart from the global weaknesses and selling by FIIs, to the Rs 60,000 crore farm loan waiver announcement made by Chidambaram.

The market has taken this as a setback to the banks' financials and, therefore, hammered bank stocks by over 10 per cent. The beating that the banking sector took contributed 550 points to the 2,000-point Sensex fall in five trading days after the Budget. ICICI Bank was the worst hit, down 20 per cent on account of derivative losses by its overseas subsidiary.

Political instability played a major role in the market in 1998 when Yashwant Sinha, the then Finance Minister of the National Democratic Alliance (NDA) government, presented his Budget on June 1. The markets fell over 7 per cent a week after the Budget. Sinha apparently rubbed the markets the wrong way by presenting a swadeshi Budget with record increase in indirect taxes through hikes in custom duties.

Sinha also met with a similar fate in 2001 when he presented his fourth Budget of the NDA regime. The Sensex declined by 3.8 per cent (-125 points) a week after despite a 177-point positive closing on the Budget day.

After replacing Sinha, Jaswant Singh presented his first Budget on February 28, 2003 and the market was disappointed.

Reason: Singh had freed the shareholders of the dividend tax and levied 12.5 per cent dividend distribution tax (DDT) on the companies.

The 'Dream Budget' of 1997 saw the stock market recording the biggest ever post-Budget rally with the Sensex zooming by over 13 per cent or 448 points.

The 1999 reform-oriented Budget, the first full Budget of the NDA government, saw the Sensex continue with the momentum and gain 12.8 per cent or 415 points.