Budget 2024: Anand James of Geojit in favour of short strangles on Nifty 50, expects volatility on February 1

Budget 2024 Trading Strategy: D-Street veterans and several brokerages have predicted that the upcoming Interim Budget will not have any major policy changes or new announcements. However, the budget session will set the framework for future policy decisions and be closely monitored for the rate of fiscal consolidation along with policy priorities for capital expenditures and non-capital expenditures.

Finance Minister Nirmala Sitharaman will present the Interim Budget for the financial year 2024-2025 (FY25) on February 1, ahead of the general elections this year. The finance minister's declaration that it will be a vote of account suggests that no significant policy announcements are likely expected in the interim budget.

As a Vote on Account is merely an interim authorisation to spend money, as opposed to a full Budget that includes details of expenditures and receipts, including tax changes and government policies, this time significant tax and policy changes are unlikely.

Experts observe that this could not be a major event for the stock market as the full-fledged Budget will be presented after the government formation. D-Street analysts also do not expect any profound impact on the frontline indices as trading opportunities will be limited. The government's focus is expected to remain on reducing the deficit, boosting manufacturing, and investing in infrastructure.

As investors would be interested to understand the trading strategy for tomorrow when the interim budget will be presented, Anand James, Chief Market Strategist, Geojit Financial Services discusses key stocks, important market levels, and the most sensitive sector to watch out for on February 1.

Also Read: Budget 2024 Expectations: From capex target to fiscal deficit, CareEdge predicts these changes for India's economy

Stocks in focus on February 1

The play around budget day is usually around stocks that could benefit from favourable announcements, but with the February 1 being only a vote on account budget, opportunities may be limited, according to the Geojit market strategist.

“Yet, we are okay with playing the renewable energy theme as well as railway theme via Borosil Renewables Ltd and RVNL respectively, despite them having registered substantial gains recently. Meanwhile, Nifty has benefitted Reliance and Adani stocks' surge, helping the index to touch a distance of 21,800, a region that has attracted rejection trades recently,” said Anand James of Geojit.

According to BSE data, RVNL or Rail Vikas Nigam shares have already surged 62 per cent in 2024 so far and 89 per cent in the last three months. The stock has turned multibagger in the past six months and has gained 144 per cent in the said period. In the last one year, RVNL shares have delivered a massive return of 306 per cent. The Indian Railways stock has multiplied investors money by 727 per cent in two years and 840 per cent in three years.

According to market analysts, the sharp rally in railway stocks was attributed to the anticipation of the central government unveiling fresh investments for railway infrastructure development in the upcoming 2024 budget.

Nifty 50 levels

“We remain positive for continued rise towards 22,190 as long dips are contained above 21,490, but would be forced to consider 20,900, should we slip back below 21,330,” said Anand James.

Option traders would do well to note that VIX usually rises in the fortnight ahead of budget, with last year seeing a 66 per cent rise during the same period, only to see a steep fall in VIX, post budget, according to the market expert.

“Though the full year budget is only in July, the rise in VIX from the fortnight’s low is still underway, with a near 30 per cent rise so far. Towards this end, we favour short strangles on Nifty 50,” added James.

Also Read: Interim Budget 2024: Trading strategy for Budget Day by HDFC Securities, Arihant Capital, 3 others

Trading strategy

Budget sessions are usually marked with high volatility as markets tend to react to budget-related announcements for key sectors. D-Street experts advise that traders should maintain strict stoploss and only trade once clarity emerges from budget announcements. 

Sectors such as infrastructure, finance, hotels, railways, and manufacturing are likely to see higher price volatility and volume pick-ups. Experts say that traders should wait for volatility to subside and can accumulate stocks that are showing comparative strength.

Overall, James of Geojit Financial Services expects volatility to remain during the market session tomorrow as Nifty 50's long dips will likely be contained above the 21,490 zone.

Derivates Outlook

Nifty weekly contract has highest open interest (OI) at 22,500 for Calls and 21,500 for Puts while monthly contracts have highest open interest at 23,000 for Calls and 21,000 for Puts. Highest new OI addition was seen at 22,400 for Calls and 21,600 for Puts in weekly and at 21,700 for Calls and 21,700 for Puts in monthly contracts. 

FIIs increased their future index long position holdings by 12.62 per cent, decreased future index shorts by 2.88 per cent and in index options by 53.08 per cent increase in Call longs, 56.85 per cent increase in Call short, 64.70 per cent increase in Put longs and 88.83 per cent increase in Put shorts.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.