This budget will not be only financial statements. It will set the first policy direction of the UPA government and define the direction of the market. The Sensex is up over 17 per cent since the UPA’s election victory. But the rally has recently sagged as traders remain cautious about the government’s ability make some big bang announcements to speed up the economic growth given the limited fiscal room.

Even the volumes have dropped, indicating that traders are hesitant to take directional calls. The FIIs, which were responsible for fueling the rally since March 9, have been lying low, waiting for the budget.  

If history is any guide, markets on budget day have sided with the bears. So has been the one-month period after the budget. On the day of budget, markets have 60 per cent probability of ending in red.  Average monthly return of the Sensex one month after budget (from 1991) is -2.1 per cent, with a standard deviation of 11.1 per cent. Average monthly return (from 1991) during the one-month leading to the budget has been 2.8 per cent, with a standard deviation of 9.2 per cent. 

UNION BUDGET V/S SENSEX