Out of the last 15 years Budget days, Nifty closed in the green on 8 occasions with highest change of 4.74% at 14,281 on February 1, 2021. On February 26, 2010, Nifty gained 1.29% to close at 4,922; on February 1, 2017, Nifty was up 1.81% at 8,716. On the previous Budget day, February 1, 2022, Nifty closed 1.37% higher at 17,577, according to a report by Samco Securities.
On the other hand, there were 7 days out of last 15 Budgets when the Nifty closed in the red with maximum loss of 2.51% on February 1, 2020 at 11,662.
Meanwhile, for the week preceding Budget in last 15 years, Nifty traded higher on 8 occasions. For the week post Budget in last 15 years, there were 9 times when Nifty gained. On an average, Nifty posted better returns in the week post Budget as compared to week ahead of the event, the Samco analysis showed.
“We have witnessed 15 Budgets (13 full and 2 interim) from 2010 to 2022. The average budget day returns in Nifty is 0.26%. Nifty's average returns one week before the budget is -0.52% and one week after the budget is 1.36%. The average trading range (difference from day's high to low) on the day of budget is 2.65% of past 15 years," said Apurva Sheth, Head of Market Perspectives & Research at Samco Securities.
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For Bank Nifty also, the post Budget week on an average saw better returns than the Budget Day or the week preceding the Budget Day.
Trading Strategy for Options Traders
The data clearly shows that the market trades lower ahead of the Budget due to fear and uncertainty and once the event is passed investors quickly discounts it. If the budget is not favourable then investors take it into account immediately and market makes an intermediate low on the Budget day.
“Looking from the above insights we believe that short term options traders must look for opportunities on the long side after the budget. If all their conditions are met then chances of making money on the long side after the Budget are high," advises Sheth of Samco.
For Bank Nifty, average gains are higher than the gains in Nifty and the number of positive closing are also higher.
“Looking from the above insights the volatility is extremely high in Bank Nifty compared to Nifty. Option traders must look for hedged long strategies like Bull Call Spread or Call Ratio Backspread to make the most if Bank Nifty moves up after the Budget. Traders must also keep adequate stoplosses if the movement is not favourable," advises Sheth.
Trading the India VIX
The data from Samco report shows that the India VIX index that measures volatility is on the higher side before the event and it drops lower as the budget unfolds.
So Apurva Sheth advises Option traders to look for adopting an intraday short straddle or short strangle strategy to take benefit of falling VIX. As volatility cools down, there may be a sharp fall in option prices.
