Impact of Union Budget on CNX Auto and CNX Bank

 

Dr. Divya Verma Gakhar^1*, Ms. Tina Mohun², Ms. Anita Pandey²

¹Assistant Professor, University School of Management Studies, Guru Gobind Singh Indraprastha University, Dwarka, New Delhi, India

²Student, University School of Management Studies, Guru Gobind Singh Indraprastha University, Dwarka, New Delhi, India

 

ABSTRACT:

Most of the past researches have been done on NIFTY index, and very few of them are on sectoral indices. This study focuses on CNX AUTO and CNX BANK. The paper empirically examines the effect of Union Budget on average returns provided by CNX Auto and CNX Bank. The period covered under study is from 2011 to 2015.This period includes a total of 5 Union Budgets and 1 Interim Budget. To study the impact of union budget a total of 60 trading days before and after the budget is considered and this time period was segregated into long term (30 days), medium term (10 days), short term (3 days) prior and subsequent to the declaration of the union budget. The study answers the following queries: Is the volatility in stock market induced by the budget or is it the general market volatility which we observe in any normal day? And is the stock market response to a Budget is immediate or should the market be given ‘some time’ to digest the information? The statistical tools used are paired T-test and F-test. Paired T-test is conducted on average returns and F-test is conducted on variances. The findings conclude that there is no impact of budget on the returns of long term, medium term and short term period. Volatility, on the other hands for both CNX Auto and CNX Bank does not change from long term pre budget period to all the post budget period. Further, it provides that there is no increase in the volatility as time increases in post budget period. The implication of this paper is that investor should continue with his strategy on investing in CNX Auto and CNX Bank around the budget period as there is no significant change in the volatility during budget period.

 

 

 

INTRODUCTION:

The stock price movements are affected by various macro economic factors. Annual Union Budget is also an important indicator of economy which contribute to the stock market movement.  There exists a relation between financial markets’ performance and the economic performance. The stock market reflects the economic performance of the country. In India, the budget is an annual financial statement containing the estimated receipts and expenditure of the government of India. It is, laid before parliament every financial year, which runs from 1st April to 31st March under article 112 of the constitution. A budget act as a powerful tool in the hands of the government to control the economic resources of the country. It is like  a quantitative expression of the future course of action. It states all the economic events that will take place in the current year for various sectors for example it includes tax proposals, funding the unfunded, budget estimates, investment in various fields of the economy, major challenges ahead, exchange rate policy and financial sector reforms which may have favorable or adverse impact on various sectors of the economy. The budget is formulated by the Budget Division Department of Economic Affairs of the Ministry of Finance every year and presented by Honorable Finance Minister of India. The Union Budget was a major Statement of Account of public finances has now,  become a significant opportunity to indicate the direction of India’s economic policy and its pace of growth. Though challenging, it gives a ray of hope to the common man, whose quality of life needs to be improved. It gives a Fiscal Roadmap of various policies that are to be initiated by the government and provide with the measures to cope up with the challenges ahead.

 

This paper analyses the impact of union budget on two sectoral indices of National Stock Exchange (NSE): Auto sector and Banking sector. NSE’s sectoral indices: CNX Auto Index, reflects the behavior and performance of the Automobiles segment of the financial market. The Index comprises 15 tradable, exchange listed companies. It represents auto related sectors like Automobiles 4wheelers, Automobiles 2 and 3 wheelers, Auto Ancillaries and Tyres.

 

The CNX Bank Index comprises of the most liquid and large capitalized Indian Banking stocks. It provides a benchmark to the investors and market intermediaries that captures the capital market performance of the Indian banks. The Index  consist of 12 stocks from the banking sector, which trade on the National Stock Exchange (NSE).

 

The objective of the study is to understand the impact of budget on stock market volatility specially on CNX Auto and CNX Bank Index.

 

The rest of the paper is organised as follows: Apart from introduction section two discusses about literature review, section three defines the methodology of the study, section four explains analysis and discussion and section five concludes the study.

 

LITERATURE REVIEW:

Different aspects of investor’s reaction on stock market have been studied by various authors. Gupta and Kundu (2006) analyzed the impact of Union Budget on stock market. The major factors considered were the returns and volatility in Sensex. The results of the study show the maximum impact of budget in short-term post budget period whereas medium term and long term do not show any significant increase in average returns and volatility.Thomas and Shah (2002) examined the index of the Indian stock market considering the time period from April 1979 to June 2001. 26 budget dates are covered in this period. The study finds positive post-budget returns for few years while the same are found to be negative for the other few years. Thus, a clear pattern is not found on an overall basis about the movement in the Index in a post-budget period. Any over-reaction or under-reaction was not observed in the pre-budget and the post-budget period. Thus, the study shows that  the market is semi-strong efficient and budget news  was absorbed by the participants in a rational manner.

 

S.Babu and Dr. M.Venkateswarlu (2013) studied the impact of Union Budgets on the prices of the Indian stock market. The study considered the data of the time period from 1991 to 2009.It focussed on the impact on returns and volatility. It is found that the effect of the budget is only up to fifteen trading days post budget. Thus, the investors must invest accordingly for good returns. Also, the investor should be cautious while investing just around and on the budget day. It was also found that the impact of budget reduces as we move further away from the budget day. French et al. (1987) studied the relationship between the returns and the volatility of the stock market. It was observed that the expected market risk premium was directly proportional to the predictable volatility of stock returns. Also an inverse relation is found between the unexpected stock market returns and the unexpected change in volatility. This inverse relation also validates the positive relation mentioned above.

 

Qi et al. (2005) studied the relation between the expected returns and volatility in the stock market. The study has been conducted on the 12 largest international stock markets during the period of January 1980 to December 2001.The parametric EGARCH-M models was used. It was found out that there was a positive but insignificant relationship during the sample period for majority of the markets. But, in 6 out of the 12 markets, a significant negative relationship between volatility and expected returns was found using flexible semi-parametric specification of conditional variance. Dutt and Humphery (2012) studied the relationship among stock return volatility, operating performance and stock returns. The results showed a negative relation between the volatility and the returns of the stock market. It was found out that the low volatility stocks earn higher returns in emerging and developed markets outside North America. The study was focussed on the need to control stock return volatility while measuring operating performance and the performance of the stock market.

 

Kutchu(2012) studied the impact of union budget India(2012)on six select sectoral sectors to identify the existence of semi-strong efficiency of Indian stock market. The results of the study concluded that the investors have the chance to make abnormal returns but the impact of budget seems to be company- specific. Verma and Agarwal (2005) studied the event of budget with event window of 4 years. Comparison of the returns on CNX nifty index before and after the budget was done to assess the impact of the event. The result of the study concluded that the event have a significant impact on the stock market.

 

Joshi and Pandya (2008) examined the volatility in the Indian stock market- NSE and BSE.. The event window was of 16 years of daily data (July1990 - October 2006) of Nifty and Sensex. It was found that the volatility in the both markets is predictable and highly persistent. They also concluded that future volatility revises small with large market news. Nirmala et al. (2011) identified the decisive factor which affect the share prices in the Indian stock market. The study was conducted on three sectors, i.e. auto, healthcare and public sector and the event window was from 2000-09. The statistical tool least squares method was applied to the data. It concluded that the price earnings ratio, leverage and variables dividend are significant determinants of share prices for all the sectors considered. Also, profitability was found to influence share price in the case of auto sector, De Bondt and Thaler (1985)  studied the effect of dramatic and unexpected events on the stock price movement. It also studied the reaction of people like whether people tend to overreact to such events or not. The event window was from 1926-1982 of monthly stock return data from NYSE .The study concluded that the investors overreact to such events and this  leads to strong movement of stock prices to extreme ends on both sides. Also,  the market may be efficient in the short run but not in the long run.

 

Mohanty (2004) examined how announcement of various policy issues by Government of India affect the stock price. The study was conducted on three sectors, viz., banking and financing sector, pharmaceutical sector and telecom sector. It focussed on the accuracy and speed of stock price reaction to public announcement. The study concludes that there is a  quick change in the stock prices to the public news announcements. It was also found that the first adjustment need not necessarily be correct. There is also a mild evidence of presence of learning lag.

 

 

Kaur (2004)  studied the pattern of volatility of the stock returns in the Indian stock market and tried to identify its extent during the year 1990 to 2000. It was found out that April is the most volatile month followed by March and February. The reason for the volatility in these months was the presentation of Union Budget in the previous month of February. Rao (1997) studied the impact of macroeconomic events like the credit policy and union budget announcements on the movement of stock prices. The time period considered was from 1991-1995. It was found that  that there is increase in the volatility of stock prices of the market portfolio due to the union budget announcements. However, credit policy announcements had no impact on stock price behaviour.

 

P.Varadharajan  and Dr. P Vikkraman (2011) studied the impact of budget on the volatility of the stock market and its relationship with the returns. This study also examines the volatility of different months on major indices in India.  for a period of ten years . The objective of the study is to make the investors aware regarding the volatility present in different months so that they can  make good returns. Singhvi (2014) studied theimpact of union budget on the NSE index, NIFTY. The event window was from 1 January 1996 to 31 March 2013 comprising of total  21 budgets. The study concluded that returns on budget day are more than the returns during all the pre-budget period. It was also found that  all the post budget period i.e. short term, medium term and long term have no significant impact of budget on average returns of Nifty Index.

 

RESEARCH METHODOLOGY:

The objective of our study is to analyze the effect of announcement of budget on sectoral returns in the pre-budget and post- budget period. The volatility is studied through variance of daily returns in the stock market (CNX Auto and CNX Bank) for short term (3 days), medium term (10 days) and long term (30 days) in pre-budget and post- budget period. Then volatility of returns is compared in short term, medium term and long term period with one another. Later on comparison of variance among the returns during post-budget period with long-term pre-budget period.

 

The daily closing prices have been collected from the official website of National Stock Exchange of India Ltd. The indices CNX Auto, CNX Bank have been used to gather data, as it is considered being an important indicator of trading activities of Indian stock market. The period covered under study is from 2011 to 2015.This period includes a total of 5 Union Budgets and 1 Interim Budget. A total of 60 trading days before and after the budget is considered to study the impact of budget. The study considered only the trading days and not the days on which market remained closed and no trading was done.

·         The data in the research has been taken for 5 years i.e. from 2011 to 2015. The closing prices of indices CNX Auto, CNX Bank have been considered.

·         The time period of the study has been classified into pre-budget and post budget period.

·         The event window is short term (3 days), medium term (10 days), long term (30 days) before and after the declaration of the union budget. These periods are shown in the table  as:

 

Period of study:

 

The following hypotheses have been framed:

H₀: There is no significant impact of budget on NIFTY returns.

H₁: The difference in the volatility when comparing all the post budget periods with long term pre budget period for Nifty Index, is insignificant.

H₂: Volatility in short term period (3 days) is more than medium (10 days) and long term period (30 days) during post-budget session.The steps to carry out the analysis are discussed hereunder:

 

First, the logarithmic daily return is found over the previous day’s closing value during the entire 5 year period. This is done with each sectoral index i.e. CNX Auto, CNX Bank.

 

Second, the average return during the previous and the next 3, 10, 30 days of the budget is calculated. This is done by using Excel.

 

Third, the standard deviation during the previous and next 3, 10, 30 days of the budget is calculated. Then, the variance is calculated using standard deviation.

 

After this, statistical technique of paired t-test and F-test on average return and variance in return over different period around budget is performed.

 

The average returns have been derived from averaging logarithmic differences of closing prices of two successive trading days. The log value of the returns has been used because it has the advantage of symmetry while measuring any rise or fall of numbers vis-à-vis percentage method.

 

The formula used is as follows:

R_t =log (Pt/ P _t-1)

Where, R_t = Market return at the period t

             P_t = Price index at day t

     P_t-1 = Price index at day t-1

             log = Natural log

 

The values considered here are the absolute values of the average returns during various periods before and after the budget. The absolute figures have been taken as the primary focus is to study the impact and not the direction of post-budget stock prices.

·         The study has used the statistical techniques of paired t-test and F-test on average returns and variance in returns respectively over different periods around the budget.

 

The t-test is carried out using the software SPSS.

In a paired t-test, two related samples are compared after observations are collected from matched pairs .The pairs are matched in “an attempt to eliminate extraneous factors which are not of interest for the test”. This test helps to find out the pre-budget and post-budget effect on stock prices of CNX Bank and CNX Auto.

 

·         The test statistic F is calculated as follows:

F=ϭ(X₁)²/ϭ (Y₁)²

Where: ϭ(X₁)² = ∑ (R_x1 – R_X1)² / (n₁-1)

Ϭ (Y₁)²⁼∑ (R_y1 – R_y1)² / (n₂-1)

Here, X₁, Y₁ are two sample time periods, and being the sample return variances and n1and n2 being their respective numbers of observations.

 

Two set of hypothesis tests will be conducted in this part of analysis.

·         In the first set, variances of return during the short-term, medium-term and long-term periods in the post-budget situation have been compared to one another, i.e., variances of returns between Y₁ and Y₂, Y2 and Y₃ and Y₁ and Y₃respectively have been examined. These comparisons have been made because variances are expected to rise with the increasing time-period. The null hypothesis in all the three tests assume no change in variance i.e. variances are equal.

·         In the second set, each of the post-budget short-term, medium-term and long-term periods have been compared to the long-term pre-budget period, i.e., variances of returns between X₁ and Y₁, X₁ and Y₂ and X₁ and Y₃ respectively have been examined into. These tests have been framed with a more empirically established fact that the variances in returns after budget are expected to be greater than the pre-budget long-term variance.

 

ANALYSIS AND DISCUSSION:

This section is sub divided into two parts. First part is related to CNX Auto and second part is related to CNX Bank.

 

 

Impact of union budget on CNX Auto

Table 1 represents the average daily returns given by CNX AUTO during various periods around the budget.

 

Table 1: Daily Average Return of CNX AUTO

 

The medium-term average returns are seen less fluctuating than the short term ones. In medium term, post budget period with the only exception being in 2012. In cases of long-term budget effect, the magnitude of positive or negative average returns is even less insignificant.

 

In 2015, in Pre-budget period, the returns increased from long-term to medium-term and then decreased from medium-term to short-term. In Post-budget period, the returns became positive in short term and then negative in medium and long-term. Although the budget didn’t have much for the automobile sector as the government in the country changed and they have brought a very moderate budget in economy which was not up to the expectations of the investors.

 

 

 

In 2014, INTERIM BUDGET, in pre-budget period, the returns were very low in long-term period as compared to medium and short-term.

 

In post-budget period, the returns decreased in short-term and then increased in medium-term and again decreased in long-term. This shows that though the interim budget was good enough, it doesn’t have an impact in long-term.

 

The estimates indicate that an individual budget has maximum impact (positive or negative) in the short-term (three days post budget), which diminishes in the medium-term(15 days post budget) and further reduces in the long-term (30 days post budget) in comparison to the pre-budget period.

 

The above observations have been further corroborated by statistical evidence:

 

Paired T-Test of CNX AUTO

Table 2: Paired Samples Test

 

A paired sample t test has been conducted to evaluate whether a statistically significant difference exist between the returns of pre-budget and post-budget period. 

 

The result of the paired sample t test will not be significant, if t>0.05, indicating that there is a significant increase in the returns from the pre-budget period to the post-budget period.

 

 

The t values of the paired samples test table conclude that the analysis has accepted the null hypothesis in all the periods (30 days,10 days,3 days) so there is no impact of budget on the returns of long term, medium term and short term period in CNX Auto.

 

Therefore, there is a significant increase in the returns from the pre-budget period to the post-budget period.

 

 

 

Table 3 represents the variance of returns in CNX AUTO. A cursory glance at it shows increased volatility over the long term compared to the medium term and the short term in pre-budget period and decreased volatility over the short term compared to the medium term and the long term in post-budget period in most of the cases.

 

 

Table 3: Variance of Return CNX AUTO

Year	Pre 30 Days	Pre 10 Days	Pre 3 Days	Post 3 Days	Post10 Days	Post 30 Days
	X1	X2	X3	Y1	Y2	Y3
2011	0.00030	0.00040	0.00055	0.00055	0.00044	0.00026
2012	0.00018	0.00007	0.00005	0.00016	0.00017	0.00011
2013	0.00011	0.00014	0.00030	0.00018	0.00009	0.00009
2014	0.00015	0.00027	0.00023	0.00016	0.00007	0.00012
2014 (Interim)	0.00011	0.00008	0.00001	0.00003	0.00005	0.00004
2015	0.00016	0.00012	0.00008	0.00027	0.00007	0.00009

 

These findings have been further statistically tested by F-test.

 

 

Table 4 shows specifically the F-test values for the tests that compares the variances of returns during short-term, medium-term and long-term post budget periods with that of the long-term pre-budget period

 

 

Table 4: F-test Results Comparing Variance Among the Returns During Post-Budget Periods with Long-Term Pre-Budget Period

Years	Actual Values	T.V (1%)	T.V (5%)	Actual Values	T.V (1%)	T.V (5%)	Actual Values	T.V (1%)	T.V (5%)
	X 1 and Y1	df=29/2	df=29/2	X1 and Y2	df=29/9	df=29/9	X1 and Y3	df=29/29	df=29/29
2011	1.8425	7.598	3.3277	1.4605	3.092	2.2229	1.1402	2.412	1.8543
2012	1.1383	99.466	19.4624	1.0631	4.649	2.8637	1.6157	2.412	1.8543
2013	1.6587	7.598	3.3277	1.2347	4.649	2.8637	1.2170	2.412	1.8543
2014	1.1142	7.598	3.3277	2.1290	4.649	2.8637	1.2566	2.412	1.8543
2014(Interim)	3.9946	99.466	19.4624	2.4208	4.649	2.8637	2.9430*	2.412	1.8543
2014	1.7229	7.598	3.3277	2.2132	4.649	2.8637	1.8181	2.412	1.8543

Note: Table Values(T.V) have been sourced fromwww.statsoft.com/Textbook/sttable.html

  * H₁ is rejected and its alternative is accepted at 5 percent level only.

 

 

The only long-term period shows a significant case in 2014 Interim budget where actual value of X₁ and Y₃ is greater than the table value of 1% and 5% i.e. 2.9430 (actual value) is greater than 2.412  (at 1%) and 1.8543 (at 5%)  so H₁ is rejected and alternative hypotheses is accepted at 5% level. It indicates that the long-term period after the 2014 interim budget was more volatile than the medium-term and the short-term periods when compared to similar long term before the budget. While the other years don’t provide us with any significant value so this signifies that volatility does not generally increase.

 

Thus, overall hypotheses H₁ is accepted as there is no significant change in the volatility from long term pre budget period to all the post budget period.

 

 

Table 5: F-test Results Comparing Variance Among the Returns (Post-Budget) with One Another

Note: Table Values(T.V) have been sourced fromwww.statsoft.com/Textbook/sttable.html

 

 

Table 5 specifically shows the F-test values for the test that compare the variance among the returns during short-term, medium-term and long-term period after the budget with one another. There is no case at any of the level (1% or 5%) in which the actual value exceeds the tabular value. This signifies that volatility does not generally increase in a post-budget situation as time period increases. Thus, this test has rejected the H₂ hypothesis.

 

Impact of Union Budget on CNX Bank:

Table 6 presents the average daily returns given by CNX Bank during various periods around the budget.

Table 6: Daily Average Return of CNX BANK

Year	Pre 30 Days	Pre 10 Days	Pre 3 Days	Post 3 Days	Post 10 Days	Post 30 Days
2011	-0.00086	-0.00011	-0.00944	0.01233	0.00249	0.00407
2012	0.00140	0.00175	-0.00557	-0.00167	-0.00334	-0.00098
2013	-0.00308	-0.00684	-0.01235	-0.00292	0.00069	-0.00111
2014	-0.00076	-0.00252	-0.01209	-0.00066	0.00360	0.00156
2014 (Interim)	-0.00257	0.00079	0.00197	0.00544	0.00624	0.00678
2015	0.00078	0.00264	0.01047	0.00735	-0.00114	-0.00039

 

 

 

In cases of long-term budget effect, the magnitude of positive or negative average returns is even less insignificant. In 2015, in Pre-budget period, the returns increased from long-term to medium-term and to short-term. In Post-budget period, the returns decreased but remained positive in short term and then negative in medium and long-term. In 2014, INTERIM BUDGET, in pre-budget period, the returns increased from long to short-term and this pattern continued in post budget period also. This shows that the interim budget was good enough and brought positive changes.

 

The estimates clearly indicate that an individual budget has the maximum impact (positive or negative) in the short-term which reduces in the medium-term and further reduces in the long-term in comparison to the pre-budget period.

 

 

Paired T-Test of CNX BANK:

Table 7: Paired Samples Test

		Paired Differences					t	df	Sig. (2-tailed)
		Mean	Std. Deviation	Std. Error Mean	99% Confidence Interval of the Difference
					Lower	Upper
Pair 1	Pre 30Days - Post30Days	-2.50333333E-3	.00425262	.00173613	-.00950364	.00449697	-1.442	5	.209
Pair 1	Pre 10Days - Post 10Days	-2.13877400E-3	.00535532	.00218630	-.01095424	.00667669	-.978	5	.373
Pair 1	Pre 3Days - Post 3Days	-7.81333333E-3	.00853462	.00348425	-.02186231	.00623564	-2.242	5	.075

 

A paired sample t test has been conducted to evaluate whether a statistically significant difference exist between the returns of pre-budget and post-budget period. 

 

The result of the paired sample t test will not be significant, ift>0.05, indicating that there is a significant increase in the returns from the pre-budget period to the post-budget period.

 

The t values of the paired samples test table conclude that the analysis has retained the null hypothesis in all the periods (30 days,10 days,3 days) so there is no impact of budget on the returns of long term, medium term and short term period in CNX Bank.

 

Therefore, there is a significant increase in the returns from the pre-budget period to the post-budget period.

 

Table 8 presents the variance of returns in CNX Bank. A cursory glance over it shows increased volatility over the long term compared to the medium term and the short term. These findings have been further statistically tested by F-test.

 

 

 

Table 8: Variance of Return in CNX BANK

YEAR	Pre 30 Days	Pre 10 Days	Pre 3 Days	Post 3 Days	Post 10 Days	Post 30 Days
	X1	X2	X3	Y1	Y2	Y3
2011	0.00036	0.00049	0.00052	0.00040	0.00029	0.00019
2012	0.00038	0.00044	0.00008	0.00046	0.00044	0.00022
2013	0.00009	0.00023	0.00038	0.00059	0.00033	0.00022
2014	0.00016	0.00014	0.00046	0.00049	0.00020	0.00016
2014 (Interim)	0.00018	0.00010	0.00024	0.00030	0.00017	0.00020
2015	0.00022	0.00023	0.00073	0.00044	0.00029	0.00023

 

 

 

Table 9: F-test Results Comparing Variance Among the Returns During Post-Budget Period with Long-term Pre-Budget Period

Years	Actual Value	T.V(1%)	T.V (5%)	Actual value	T.V(1%)	T.V (5%)	Actual Value	T.V (1%)	T.V (5%)
	X1 and Y1	df=2/29	df=2/29	X1 and Y2	df=29/9	df= 29/9	X1 and Y3	df= 29/29	df= 29/29
2011	1.11500	5.42	3.3277	1.24120	4.649	2.8637	1.85920	2.412	1.8543
2012	1.22335	5.42	3.3277	1.18091	3.092	2.2229	1.70248	2.412	1.8543
2013	*6.41906	5.42	3.3277	*3.60299	3.092	2.2229	*2.35334	2.412	1.8543
2014	3.01199	5.42	3.3277	1.25405	3.092	2.2229	1.01075	2.412	1.8543
2014 (Interim)	1.62523	5.42	3.3277	1.08459	4.649	2.8637	1.06251	2.412	1.8543
2015	1.99596	5.42	3.3277	1.33436	3.092	2.2229	1.05709	2.412	1.8543

Note: Table Values(T.V) have been sourced fromwww.statsoft.com/Textbook/sttable.html

          * H₁ is rejected and its alternative is accepted at 5 percent level only.

 

 

Table 9 shows specifically the F-test values for the tests that compare the variances of returns during short-term, medium-term and long-term post-budget periods with that of the long-term pre-budget period. The year 2013 shows the maximum number of significant cases (3 out of 3 cases) while the other years doesn’t provide us with any significant value (0 out of 15 cases). It indicates that the short-term, medium- term and long-term period after the budget was found to be most volatile in the year 2013.On an overall view of the values we find only 3 significant values out of 18 cases. This signifies that generally there is no increase in volatility during post-budget period.

 

Thus, hypothesis H₁ is accepted as there is no significant change in the volatility from long term pre budget period to all the post budget period.

 

 

Table 10: F-test Results Comparing Variance Among the Returns (Post-Budget) with One Another

Years	Actual Value	T.V (1%)	T.V (5%)	Actual value	T.V (1%)	T.V (5%)	Actual Value	T.V (1%)	T.V (5%)
	Y1 and Y2	df=2/9	df=2/9	Y2 and Y3	df=29/9	df=29/9	Y3 and Y1	df=29/2	df=29/2
2011	1.38393	3.00645	4.2565	1.49791	3.092	2.2229	2.07300	5.42	3.3277
2012	1.03593	3.00645	4.2565	2.01047	3.092	2.2229	2.08272	5.42	3.3277
2013	1.78159	3.00645	4.2565	1.53101	3.092	2.2229	2.72763	5.42	3.3277
2014	2.40181	3.00645	4.2565	1.26753	3.092	2.2229	3.04438	5.42	3.3277
2014(Interim)	1.76270	3.00645	4.2565	1.15238	4.649	2.867	1.52962	5.42	3.3277
2015	1.49582	3.00645	4.2565	1.26230	3.092	2.2229	1.88817	5.42	3.3277

Note: Table Values(T.V) have been sourced fromwww.statsoft.com/Textbook/sttable.html

 

 

Table 10 specifically shows the F-test values for the tests that compare the variance among the returns during short-term, medium-term and long-term periods after the budgets with one-another. There is no case where we find actual value exceeding the tabular value at either 1% or 5%.This signifies that volatility does not generally increase in a post-budget situation as time increases. Thus, so this test has rejected the H₂ hypothesis.

 

CONCLUSION:

This study measured impact of budget on the stock market of auto and bank considering the returns and volatility in CNX AUTO and CNX BANK, over 5 long years and over 6 budgets. The hypotheses tests at various significance levels have provided with some interesting conclusions from the view point of an investor, the regulators and the Government.

 

There is no significant result of the Paired t-test for average returns for CNX AUTO and CNX BANK .Therefore the research failed to reject null hypothesis. This means that the average returns provided by CNX AUTO and CNX BANK in short pre and post period do not show any significant impact of Union Budget (Independent variable).

 

However, for the regulatory and the Government, should monitor market movements on real-time basis and take disciplinary actions if continuous fluctuations. Volatility, on the other hands, does not generally increase as the time period increases in a post-budget situation. But, in 2014 interim budget, the long-term period was more volatile than the short-term and medium-term periods when compared to similar long term before the budget.

There is no significant change in the volatility from long term pre budget period to all the post budget period in CNX AUTO.

 

CNX BANK test indicated that the short-term, medium- term and long-term period after the budget was found to be most volatile in the year 2013.On an overall view of the values we find only 3 significant values out of 18 cases. The test value showed that the returns during post-budget period with comparison to long-term pre budget period had no significant increase in volatility. Except the result of 2013 was found to be most volatile in all the periods’ i.e. short-term, medium- term and long-term period. The maximum volatility was in the post long term period and least in the post short term period. This signifies that generally there is no significant increase in volatility during post-budget period.

 

So, the budget induced volatility should not be of great concern for the investors, the regulators and the Government, but they should be more concerned with the normal market volatility as illustrated by the findings.

 

The t-test, however, do not prove whether the market index will rises or fall in the pre and post budget period. So if any investor wants to make any gains from budget swings, he will have to predict the budget announcements that will cause rise or fall in the budget period share prices. Further studies can be conducted on the specific budget announcements that seem to cause a rise or fall in share prices and whether all the industries are affected by the budget in the same way or not.

 

A comparable studies can be done on the stock prices of developing countries whether the Indian stock market are the only to be affected by the budget or not.

 

As this study is only conducted for auto and banking sector indices there are various indices and the effect of budget on them can be studied.

The further study can be conducted on analysing the reasons for an uneven change in volatility and returns in some years during pre and post budget period.

 

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Accepted on 05.06.2017          © A&V Publications all right reserved