Markets in wait n watch mode ahead of Budget

Unabated selling from FIIs, caution over President Trump’s policies, unenthusiastic Q3 earnings and fears over the contours of the Union Budget; the Indian equity market lost further ground during the week ended for third consecutive week. BSE Sensex shed 428.87 points or 0.55 percent to end at 76,190.46, while NSE Nifty fell 111 points or 0.47 percent to close at 23,092.20. However, the carnage in the broader market is evident in sharp cuts in the BSE Mid-cap Index (-2.3 per cent) and the BSE Small-cap index (-4.2 per cent). FIIs continued to remain net sellers offloading equities worth Rs22,504.08 crore, while DIIs bought equities worth Rs17,577.36 crore. In this month till date, FIIs sold equities worth Rs69,080.14 crore, while DIIs compensated with purchased of equities worth Rs66,944.50 crore. The India rupee managed to end higher against the US dollar in this week as it posted the best week in last 17 months with gains of 0.5 percent (41 paise) to end at 86.20 per dollar. Interestingly, precious metals are back in fashion. Gold ($2,771/ounce) and silver ($30.6/ounce) went up 2.6 per cent and one per cent respectively last week. The biggest market event to watch out in the near term would be the Union Budget scheduled for February 1 (Saturday). Market participants are hopeful for measures aimed at boosting the slowing economy and driving consumption while maintaining fiscal discipline. Some tweaks in the income tax structure and increase in the capex number is expected in the Budget. The US Fed rate setting panel will hold its first meeting of 2025 on January 28-29, in which the central bank is expected to hold interest rates after cutting 25 basis points in its December meeting. Surprise rate cut of 25 basis points is not ruled out after President Trump’s call for rate cuts at the World Economic Forum (WEF) in Davos. If Nifty ends the January series on a negative note, then it will be the fourth consecutive month of negative closing— an exceptionally rare occurrence that hasn’t happened in the last 23 years. Given the latest trend in the index and overall market, Nifty has a high probability of closing the month with a loss again. The last instance of a four-month losing streak was in 2001. Looking ahead to February, much will depend on the budget. Since 2010, the average Nifty return one week before the Budget is -0.46 per cent, while one week after is 1.35 per cent. The coming week would be a six-day trading week for Dalal Street as the stock market would remain for trading on Budget day, February 1, despite it being a Saturday.

It’s far too easy for investors to lose perspective. Whenever something big goes wrong, a lot of people panic and sell their investments. Looking at history, the markets recovered from the 2008 financial crisis, the dotcom crash, Covid Pandemic and even the Great Depression, so they’ll probably get through whatever comes next as well.

F&O/ SECTOR WATCH

With sharp stock-specific moves of over 10 per cent during intraday, ‘caution’ is the watchword among the majority of market players. With the monthly expiry of F&O contracts due next week and big ‘news’ flow on cards, expect heightened volatility in the market. The market saw selling across sectors, whereas IT and FMCG emerging as major gainers on the weekly charts. In the options segment, prominent Call Open Interest for Nifty seen at the 23,500 and 23,200 strikes, while the notable Put open interest was at the 23,000 strike. For Bank Nifty, the prominent Call Open Interest was seen at the 49,000 strikes, whereas notable Put Open Interest is at the 48,000 and 47,500 strikes. Implied Volatility (IV) for Nifty’s Call options settled at 16.29 per cent, while Put options conclude at 17.07 per cent.

The India VIX, a key market volatility indicator, closed the week at 16.70 per cent, the highest closing level since the first week of June 2024. The Put-Call Ratio of Open Interest (PCR OI) for the week was 0.87. Nifty has been consolidating within the 22,950–23,450 range for the past 10 trading sessions, remaining below key short- and long-term moving averages.

Technically both the Nifty and Bank Nifty are trading below their 200EMA (exponential moving average) indicating a weak trend. Any upward movement can be seen as an opportunity to sell on the rise. A breakdown below 22,950 could amplify the existing selling pressure, with the next support zone around 22,550-22,600. Conversely, a strong close above 23,460 could trigger a short-term pullback rally toward 23,800. Expect a strong ‘dead cat’ bounce ahead of the Union Budget on the back of falling crude oil prices, strong global equity markets, and oversold conditions in the domestic market say contrarians. Stocks looking good Biocon, Britannia, Bajaj Finance, Eicher Motors, JSW Steel and Tata Consumer. Stocks looking weak Godrej Properties, Macrotech, NCC, Oil India, Policybazar and Polycab.