After a 3.5 percent fall in the previous month, the Indian market has been recovering a bit in January on the back of moderating inflation and ahead of the Union Budget 2023. This will be the last full-Budget presentation before the general elections in 2024.
This Budget is likely to focus on capex, manufacturing push and macro stability. The announcements of the Union Budget have direct implications on the stock market as the government's policies and financial plans decide the upcoming trends in different sectors.
But how should traders position themselves ahead of the budget? Let's find out:
The Union Budget has always been one of the major trendsetters for the Indian market. Budget day is usually synonymous with market volatility. In 2022, the Indian market rose 1.4 percent on the Budget day. It also rose over 1 percent each on the day before and after the Budget announcement.
Analysts anticipate that the market will be more volatile before the Budget than after.
Vinit Bolinjkar - Head of Research - Ventura Securities, advise that traders should hedge their trades as volatility is expected to increase for the next 15 days.
Meanwhile, Rajesh Palviya, VP - Technical and Derivative Research, Axis Securities, suggests traders to execute the neutral options strategy called Long Straddle, which involves buying at–the–money call and put options of Nifty.
"Traditionally there has been low volatile-to-range-bound movement with caution bias ahead of the Union Budget as it is the most crucial trigger for market trends, although we get some clues from The Economic Survey, which gets tabled in both Houses on the first day of the budget session. From a technical perspective, the current formation of NIFTY is in the range of 18,300 to 17,700, and any sustained breakout on either side will define the trend," noted Palviya.
Similarly, for Bank Nifty, the market expert said that the range stands at 43,000-43,500 on upsides, while on the lower side, the significant support is at 41,500, and any decisive breakout on either side will dictate the trend.
From a derivative standpoint, the data of the weekly expiry scheduled on 2nd February shows a high open interest concentration at 18,000 – 18,500 and 19,000 call strikes, which are likely to act as resistance. On the put side, high OI concentration is at 17500 – 17000, which may act as a support, he added.
However, Palviya pointed out that the only caveat is that if Nifty remains range-bound with low volatility, and if there is no significant move in the market on the Budget day, traders might incur a loss to the extent of premiums paid. The break-even points of the strategy are 18,428 and 17,472, Palviya noted.
Zerodha explains the Long Straddle strategy as the simplest market-neutral strategy to implement.
"Once implemented, the P&L is not affected by the direction in which the market moves. The market can move in any direction, but it has to move. As long as the market moves (irrespective of its direction), a positive P&L is generated. To implement a long straddle all one has to do is – Buy a Call option/Put option and ensure that 1) both the options belong to the same underlying, 2) both the options belong to the same expiry and 3) belong to the same strike," explained Zerodha.