The Budget day trading session is one of the most volatile days of the year for the Indian stock market. Historically, the Nifty 50 experiences sharp fluctuations, swinging an average of 2.4% intraday. As traders and investors prepare for Finance Minister Nirmala Sitharaman’s presentation of the Union Budget 2025, market participants should brace for another session filled with sharp spikes and stock-specific movements.
Pre-Budget Market Trends and Expectations
Leading up to the Union Budget, domestic equity markets generally witness a pre-budget rally. Investors pour funds into stocks and sectors expected to benefit from new policy measures. However, despite a 2% jump over the past five sessions, the Nifty 50 has slipped 1% year-to-date.
The optimism sparked by the Economic Survey 2024-25, which reinforced confidence in India’s economic fundamentals, played a role in the recent market rally. Analysts suggest that if the Budget 2025 includes tax cuts and an emphasis on capital expenditure, markets may rally post-announcement. However, experts like V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, caution that the Budget’s impact may last only a few days.
Volatility on Budget Day: What to Expect?
Budget day is often marked by sharp spikes and reversals. Historically, the Nifty 50 sees an average intraday swing of 2.4%. The India VIX, also known as the “fear gauge,” tends to rise significantly, indicating heightened uncertainty.
“A high VIX presents an opportunity for derivative traders and option sellers looking to profit from volatility. However, with VIX hovering around 17-18, buying expensive option premiums might not be ideal, as volatility crush could impact profitability,” notes Preeti K Chabra, Founder of Trade Delta.
Given the high volatility, traders should adopt strict stop-loss strategies and implement trades that benefit from volatility contraction to minimize risks.
Trade Set-Up: Key Indicators to Watch
- The Nifty 50 recorded its biggest single-day gain since January 2 and formed a long bullish candlestick pattern on daily charts.
- The index closed above the January 21 resistance level (23,426), potentially signaling a bullish reversal.
- The Put-Call Ratio (PCR), a key sentiment indicator, increased from 0.97 to 1.01, indicating a strengthening bullish sentiment.
Nifty’s Track Record on Budget Days
The Nifty 50’s performance on Budget Day over the last 10 years shows a mixed trend:
- Six times in the past decade, Nifty closed in the red.
- Over the past three years, the index ended in negative territory.
- Only on three occasions did the Nifty close above 1% higher.
- The biggest rally was in 2021, when Sensex surged 5%, and Nifty jumped 4.74%, fueled by a growth-oriented budget.
- Markets fell over 2% in 2019 and 2020, reacting negatively to tax changes and global uncertainties.
How to Approach Today’s Market Open?
With high volatility expected, traders should take a cautious approach when entering the market today. Given the uncertainty surrounding the Union Budget 2025 day session, here’s what traders should do:
- Adopt a flexible trading approach: Avoid aggressive bets and focus on strategic investments.
- Watch key resistance levels: If the Nifty 50 sustains a close above 23,500, it could indicate further upside potential.
- Implement strict stop-loss strategies: Avoid overnight positions and mitigate risks.
External Factors Influencing Market Sentiment
Apart from the Budget, several global and domestic factors could impact the Indian stock market:
- The RBI’s upcoming monetary policy meeting.
- Trump’s tariffs and global trade tensions.
- The ongoing corporate earnings season.
- Key macroeconomic data such as GDP projections and inflation estimates.
Budget Day Trading: Key Takeaways
- Expect high volatility with sharp market swings.
- The India VIX will likely remain elevated, affecting derivative strategies.
- A bullish breakout above 23,500 could signal sustained market momentum.
- External factors like RBI policy and global cues will influence market sentiment.
Read More: Deva Movie Review: Shahid Kapoor’s Action Thriller Off to a Slow Start
Conclusion
The Union Budget 2025 will set the tone for the market’s direction in the short term. Whether the Nifty 50 soars or slides will depend on the announcements made by the Finance Minister and broader market sentiment.
Given the historical trends and heightened volatility, traders and investors should adopt a calculated approach. While the potential for a post-budget rally exists, it’s crucial to focus on risk management strategies. Staying informed, following key technical indicators, and exercising caution while trading today will be the best way to navigate this special trading session.
