Stock markets before Budget 2023: Doing less may result in more!

Every analyst, every asset manager, every corporate finance professional, every CFO, every broker, every journalist and for that matter almost everyone in our country, including the housewives, has major expectations from the budget. Anticipations and expectations that masses will indeed develop ahead of any key event, do happen ahead of the budget too and for its obvious significance in highest intensity.

We should also think for a moment what does the market expect from each of its participants ahead of budget 2023. Most people miss the patterns of price action (that reflect the deep unconscious mind of the market). Instead, many stay entangled with only the conscious mind of the market that comprises of news flow, descriptive logic, and the narrative. Hence, people are deeply influenced by the prevailing story which--as a parallel to the human mind--stays in the conscious mind.

But all market participants, including media, market experts, erudite, scholarly, well-read fund side analysts and brokerage side analysts, fund managers and every key voice in corporate finance or investment banking must as a duty get into a hyperactive mode (all forecasting in any case is imagination) with deep expectations. This is a picture I have seen happening every time in last 30 years.

However, a statistical event study of the market response to budgets by Dr Ajay Shah & Susan Thomas, points out the obvious state of the deep subconscious mind of the market.

Only on three occasions in about 30 years of stock market responses to budgets that Dr Shah & Ms Thomas studied, did the markets continue to move further in the same direction as prevailed before the budget. Thus, stock market fails to anticipate what the budget is bringing.

In the years following since the study conducted by Dr. Shah & Thomas, the same behaviour has prevailed. So, without putting the updated stats, T-Scores and varied additional statistical tests that can be conducted, we can safely say that in about 45 years everyone combined in the markets has gone wrong about 42 out of 45 times! That’s an overwhelmingly significant chance of going wrong yet again on 1st February 2023!

One can safely say with almost half a century of statistics on the table that the merely intelligent and the merely well informed that lead the market discourse and narrative have repeatedly gone wrong 42 times out of last 45 Budgets. There is the greater wisdom that arises from ignoring what mere intellect proposes. It’s time to be aloof and less active in markets around any big critical event, with budget being among the biggest. To take such guesswork as what budget will contain and much more importantly how market will finally take it, is a loser's game. Listen to the budget for intellectual fulfilment but do, as the budget is read out, what market does.

In simpler words, huge events by the design of markets and how the human crowd generates its collective mind, almost always defy the commonly built anticipations. It doesn't have anything to do with whether markets are a zero-sum game or a positive sum game or a variable sum game in game theory terms. Let's keep things as simple as they can be.

So, right now is the worst time of the year, for a market rally to happen, if that’s what will begin now and be confirmed in tomorrow's market action. Why?

Even though the scholar on whose research paper I have picked up a very important exceedingly high probability pattern, Dr Ajay Shah, is currently appearing discredited due to his alleged involvement in the co-location scam, his study is sound and continues to be valid.

In descriptive terms, I have no hesitation, therefore, to believe that while the market as an entity in its entirety is akin to the collective mind of the masses, the movements of the market are anti-individual-mind [For that my teacher of Spirituality has been constantly teaching me one of the key essences of the Bhagawad Gita for over 2 decades, to bye-pass my own mind, which is a self-organising pattern-seeking system that seeks to find comfort zones from imagined and not observed patterns in the real world].

Thus, to conclude, from our chart reading if today's inflection point resolves into a market rally from tomorrow, then in just 13 more calendar days we will have 9 trading sessions before the Budget and a very noisy trap will get laid.

However, if we continue to go down, using these impossible to ignore stats from Ajay Shah's paper around the budget we should get very light.

A final word: intellect is not a sufficient condition to survive markets, it’s a necessary condition. Yet, it is wisdom that might be the sufficient condition. Do remember, the best definition of maturity provided by Osho is that the ability to ignore is maturity.

Do think! From now, until the budget, whether our mandate from our families is to keep forcing ourselves on the markets or our duty is to modulate our participation? Sometimes doing less results in more.

(Sushil Kedia, is Founder & CEO of KEDIANOMICS, a financial markets research firm.)