Budget 2024 | Pre-budget positioning and tips for traders

The interim budget is scheduled to be presented by Finance Minister Nirmala Sitharaman on February 1. Currently, the Nifty is trading around the 21,800 levels. While corporates, traders, and investors focus on growth forecasts, with particular interest in sector-specific announcements, taxpayers are keen on tax-related announcements.

As we move closer to the event, here’s how Chandan Taparia, Senior Vice President and Head of Derivatives, Motilal Oswal Financial Services, is positioning the market:

Pre-budget positioning

Liquidity is driving the market, along with positive sentiments and political stability. The setup and positioning are bullish as the Nifty has rallied by around 3,300 points from 18,834 to 22,124. Even after a small profit-booking, the decline from its lifetime high of 22,124 has been 21,300. In the recent scenario, many smallcaps and midcaps, including central public sector enterprises, power, energy, and railway stocks, are witnessing huge demand and interest.

Derivatives volatility view

India VIX is below its recent multiple-month high of 16.50 but has recovered from the lows. As long as volatility remains below the 16-15 zones, bulls might dominate, and any meaningful decline could be bought smartly. A VIX beyond the level of 17 should trigger caution in the market.

Technical setup

Nifty

The Nifty50 has been making a higher top, higher bottom formation on the weekly chart, and supports are gradually shifting higher. The market setup is bullish, but last week was slightly disturbing to bulls, with some corrective moves in HDFC Bank and some negative divergence on the charts.

Till it holds above the 21,000-21,200 zones, the overall setup is bullish, with a buy on decline strategy for an upmove towards the 22,124 and 22,500 zones.

The short-term market outlook will change only if the index holds below the 21,000 zone.

Bank Nifty

Bank Nifty is known as a much-volatile instrument, and this rate-sensitive index is likely to see huge swings due to Budget 2024. The index recently took a corrective move due to a decline in HDFC Bank, and that might give a scope for a limited upside as we are in the corporate earnings season. The Bank Nifty has  a major support at the 45,000 zone. Above 46,500, it may see a retest of 47,777 and 48,250.

Bull call spread can work

To be with the trend, one can initiate a bull call spread by buying a 21,500 call and selling a 22,200 call to play the swings of a 700-point upside by paying a nominal margin and a lesser premium amount, comparatively. The major trend is intact. However, the budget is a key event, and any negative trigger could give a sudden shock. So, it’s better to apply hedging strategies against the existing long portfolio. One can buy a 21,500 put and sell a 21,800 put to hedge the downside till the 21,800 zones.

Tips for traders on Budget Day by Taparia

Volatile swings could be seen. So it’s better to trade in option strategies. Option writers need to look at proper risk management. Long positions can be hedged for the time being. One can focus on selectively strong sectors to generate alpha.

Sectoral focus

Sector-wise, activities could be seen in the CPSE sector, like railways, power, energy, and defence. Auto, IT, and consumption sectors could react as per the comments in the sector.

Tobacco and liquor companies may see volatile swings if there are any reactions and comments related to them by the FM in her budget speech. The belief is that the Indian government may focus more on railways, Make-in- India initiatives, and infra development. As of now, don’t expect any setback from capital gains or on the FPI (foreign portfolio investment) front. Any comment to promote Gift City or trade in global equity or crypto might see an effect on selectively concerned companies. Day by day, derivatives turnover and activities are rising in the Indian market, and any comment on STT, capital gains, extension in trading hours might see some sentimental effect.

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