Pre Budget | Budget 2024 Expectations for the Stock Market

Finance Minister Nirmala Sitharaman is scheduled to present the interim budget on February 1. At present, the Nifty is trading at approximately 21,800. Taxpayers are particularly interested in tax-related announcements, while corporates, traders, and investors concentrate on growth forecasts, with a particular emphasis on sector-specific announcements.

Expectations of the capital market from the Union Budget

The Union Budget of 2024 is anticipated to provide stakeholders in the capital markets with indications of economic stability, growth-oriented policies, and strategic reforms that can support sustained market performance.

Expectations of the bond market from the Union Budget

The Union Budget of 2024 is anticipated to provide stakeholders in the bond market with indications of fiscal prudence, supportive policies for the development of the bond market, and measures that will increase investor trust and participation in the fixed-income securities sector.

Expectations of the equity market from the Union Budget

The 2024 Union Budget is eagerly anticipated by the equity market, with several critical expectations that are influencing market dynamics and investor sentiment, like clarity on taxation policies, particularly in relation to capital gains and dividend distribution taxes.

Pre-budget positioning

The market is being driven by liquidity, positive sentiments, and political stability. The Nifty has rallied by approximately 3,300 points from 18,834 to 22,124, indicating a bullish setup and positioning. The decline from its lifetime high of 22,124 has been 21,300, despite a minor profit-booking. Large demand and interest are currently being observed in numerous small-caps and midcaps, such as central public sector enterprises, power, energy, and railway stocks.

Derivatives volatility view

The India VIX has rebounded from its recent lows, despite being below its recent multiple-month high of 16.50. Bulls could potentially dominate as long as volatility remains below the 16-15 zones, and any substantial decline could be strategically purchased. If the VIX exceeds 17, the market should exercise caution.

Technical setup-Nifty

The weekly chart of the Nifty50 has been exhibiting a higher top and higher bottom pattern, and the supports are gradually shifting upward. HDFC Bank's corrective moves and negative divergence on the charts last week caused some slight concern for bulls, despite the bullish market setup. The overall setup is bullish as long as it remains above the 21,000-21,200 zones. A buy-on-decline strategy is recommended for an upward movement towards the 22,124 and 22,500 zones. The short-term market outlook will be altered solely if the index remains below the 21,000 level.

Bank Nifty

Bank Nifty is a highly volatile instrument, and the upcoming Budget 2024 is expected to result in significant fluctuations for this rate-sensitive index. HDFC Bank's recent decline may have prompted a corrective move in the index, which could potentially provide a limited upside given that we are currently in the corporate earnings season. The 45,000 zone is a significant support for the Bank Nifty. If it surpasses 46,500, it may be subject to a retest at 47,777 and 48,250.

The bull call spread has the potential to be effective

To align with the trend, it is possible to invest in a bull call spread by purchasing a 21,500 call and selling a 22,200 call. This strategy allows for the possibility of a 700-point increase while paying a nominal margin and a smaller premium. The primary trend remains unaltered. However, the budget is a critical event, and any adverse event could result in an abrupt shock. Therefore, it is more advantageous to implement hedging strategies against the current long portfolio. In order to mitigate the downside until the 21,800 zones, it is possible to purchase a 21,500 put and sell a 21,800 put.

Budget day trading strategy

Volatile fluctuations can be observed. Therefore, it is more advantageous to engage in option strategies. Proper risk management is a critical consideration for option writers. For the time being, it is possible to hedge long positions. Alpha can be generated by concentrating on sectors that are selectively strong.

Sector-wise focus

Shares to buy before Budget 2024

The CPSE sector encompasses various activities, including railways, power, energy, and defence. The auto, IT, and consumption sectors may respond in accordance with the sector's comments.

The FM's budget speech may include reactions and comments regarding tobacco and spirits companies, which could result in volatile swings. It is believed that the Indian government may prioritise infrastructure development, Make-in-India initiatives, and railways. At present, there is no indication that capital gains or foreign portfolio investments (FPIs) will result in any negative consequences. Any comment that promotes Gift City or trades in global equity or crypto may have an impact on companies that are selectively concerned. In the Indian market, derivatives turnover and activities are increasing on a daily basis. Any commentary regarding capital gains, STT, or the extension of trading hours may have a sentimental impact.