P or C? The markets preferred Chidu's budgets to Pranab's

The UPA government will be presenting its ninth budget on the trot since 2004 this Friday. However, the share market’s response to its budgets has been anything but encouraging.

Out of the eight budgets presented so far, only two have made the market respond positively. Both of them were during the previous tenure of UPA-1 (See Chart: UPA government’s 1st Tenure) when P Chidambaram was finance minister. All the budgets presented by Pranab Mukherjee have led to a fall in the markets (See Chart: UPA government’s 2nd Tenure).

In fact, in none of the budgets delivered by Pranab was the market expecting much, which can be seen in the fall in Nifty before the budget date. The Nifty has fallen by an average of 7 percent within a month of the announcement of Pranab’s budgets, though for a couple of days immediately after the budget the markets were flattish. It is as though the market realised that the promises made in the budget are unlikely to be fulfilled. And they have been right about it.

Of course, to be fair to Mukherjee, his predecessor presided over a bullish global economy. Mukherjee took over just after the Lehman crisis exploded, and had to do all the mending and fixing.

However, it is not as if Chidambaram had it easy during his time. He had the Left to deal with, whereas Pranab Mukherjee has been FM at a time when the Congress party was back with a bang in 2009 with an improved mandate. But the government has been less than competent in handling the fallout of various scams and the recalcitrance of allies like Mamata Banerjee.

So, will the markets give Pranab Mukherjee a better rating this time?

There is very little expectation from the budget this time around. A bad showing by the ruling party in the recent round of elections coupled with rising deficits has left very little options on the table for the finance minister. The only way he can prevent a fall is by not rocking the boat by imposition of new taxes.