The Union Budget has always been one of the major trendsetters for the Indian market and is usually synonymous with volatility. As per data since 2013, the Indian market (Nifty) has moved less than 1 percent on the Budget day in just four of the past 10 sessions, suggesting that the upcoming Budget could bring sharp movements.
This Budget, which is the last full Budget before the 2024 general elections, 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.
Most experts believe traders should hedge their trades as an increase in volatility is expected as we reach the Budget day. Domestic brokerage house Motilal Oswal has come out with a Budget-day strategy. Let's take a look:
The Nifty index has given a breakdown from its long consolidation of the last 20 trading sessions with a surge in the volatility index. It is facing sustained supply near its key moving averages and it started to form a lower top-lower bottom in multiple time scales.
It has broken the previous month's low along with the formation of a Bearish Engulfing pattern which has a negative implication. Looking at the overall chart structure, a bounce could be sold as the recent trend got deteriorated after breaking key support of 17,777-17,850 zones. As of now, till it doesn't negate the structure of lower top-lower bottom, weakness could extend towards 17,350 and 17,200 zones while key resistances are shifting lower to 18,000 mark.
India VIX has seen a spurt in the last three trading sessions from 13.30 to 19 zones and is hovering at the highest levels of the last 15 weeks. The surge in volatility with a decline in prices ahead of the Union Budget suggests some sort of concern in the market. It is advised to hedge your existing long position by buying Protective Puts or initiating Bear Put Spread in weekly or monthly expiries, advised MOSL. It has also advised to reduce the cost of position in delivery by writing higher strike Calls in selective F&O stocks (Covered Call) as the upside seems to be capped for time being.
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.