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    Broader markets mostly outperformed Nifty between Budgets

    Broader markets mostly outperformed Nifty between Budgets

    Broader markets mostly outperformed Nifty between Budgets
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    By Pranati Deva   IST (Updated)

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    Now, with the budget later this week, analysts expect the broader markets to further rise on expectations of steps of economic recovery by the government. Data since 2016 also shows that the broader markets have outperformed benchmarks 2 out of 3 times in between budgets.

    The broader markets are back in action after a 2-year slump with midcaps rising around 5 percent in the first month of 2020 compared to flat benchmark indices.
    Now, with the Budget 2020 is round the corner, analysts expect the broader markets to further rise on expectations of steps of economic recovery by the government.
    To further reiterate this point, data since 2016 also shows that broader markets have outperformed benchmarks 2 out of 3 times in between Budgets.
    Between Budgets in 2016 and 2017, the Nifty50 index rose nearly 25 percent, while Nifty Midcap and Nifty Smallcap indices surged 36 percent and 46 percent, respectively.
    A similar trend was repeated between the Budgets in 2017 and 2018. While the Nifty50 added 26 percent,  Nifty Midcap and Nifty Smallcap rose 31 and 36 percent.
    However, between 2018 and 2019  Budgets, when the gap was more than a year, (from February 1, 2018, to July 5, 2019), the benchmark rose 7 percent, and Midcap and Smallcap indices shed 15 percent and 29 percent, respectively.
    The slump in the broader markets was started after IL&FS crisis came to light in the second half of 2018, which adversely affected midcaps and smallcaps.
    After nearly 18 months' fall because of the crisis, midcaps have started showing some signs of recovery on way to outperform the benchmark again. Since the last Budget, on July 5, 2019, midcap and smallcap indices have risen 4 percent and 3 percent, respectively, compared to a 2 percent rise in Nifty.
    According to Reliance Securities, quality midcaps will see more investment as the value will be the focus in large caps.
    However, the data also shows that the rise in broader market indices in between Budgets have also shown a gradual decline.
    While the midcap index surged 36 percent between 2016 and 2017 Budgets, the index pared some gains the following year. It added 31 percent between the Budgets 2017 and 2018. However, between 2018 and 2019 Budgets, the index lost 15 percent.
    Similarly with the smallcap index, which rose 46 percent between 2016-17, then the gains fell to 37 percent between 2017-18. Between 2018-19, the smallcap index lost 29 percent.
    Going ahead, for Budget 2020, the market is likely to look for two key changes: a) to personal income taxes, as per most brokerages.
    There are expectations of some relief for taxpayers with incomes below a certain cut-off, and b) to taxes for companies/investors. Some reports suggest the government may remove or reduce long-term capital gains tax (LTCG) and that recently imposed on stock buybacks, BofAML said in a report.
    Motilal Oswal, on the other hand, expects the Budget to include investment push by relaxing the fiscal deficit targets and personal consumption boost by cutting personal income taxes.
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