As we edge closer to the unveiling of the Interim Union Budget for the fiscal year 2024-25, market participants are gearing up for potential shifts in the Indian equity landscape. Scheduled for presentation in Parliament on February 1, 2024, at 11 am, this budget is particularly noteworthy as it precedes the general elections set for April and May. Consequently, while sweeping changes are unlikely, the focus is anticipated to be on capital expenditure, manufacturing incentives, and maintaining macroeconomic stability.
Given the context of the elections, the government is expected to continue its trajectory of stimulating economic growth through enhanced capital investments and infrastructural advancements. Priority sectors likely to see a boost include manufacturing and renewable energy, aligning with the government’s vision for economic resilience and sustainability.
Market analysts are tempering expectations for immediate market reactions to the budget announcements, especially as they come on the heels of the Federal Reserve’s policy meeting. The consensus is that market dynamics over the coming weeks will be influenced by a blend of these two significant events.
Suman Bannerjee, the Chief Investment Officer at Hedonova, remarked, “The Interim Budget 2024 may not trigger drastic changes in the stock market or investor portfolios. However, it is crucial to scrutinize any major announcements for their potential impact on the markets. This year, the focus is anticipated to be on political and economic factors, with a continued emphasis on capital expenditure over short-term populist measures. This strategy, consistent with last year’s, underscores a commitment to sustainable economic growth. Investors should remain attuned to the government’s approach as they navigate the financial landscape in the upcoming year.”
Understanding market trends before the budget announcement is crucial for predicting potential shifts.Harinder Sahu, a SEBI-registered Research Analyst at King Research Academy, noted a 70 percent likelihood of positive market outcomes, underscoring the importance of strategic planning and vigilance on budget day.
From an analysis by Angel One, the budget day is highlighted as a pivotal moment for gauging the nation’s economic direction, often mirrored in the equity markets. Despite the volatile January, the Indian equity market has seen a remarkable over 20 percent gain since the last budget, driven by robust domestic developments and favorable global conditions. The Nifty index, in particular, has demonstrated a strong performance, suggesting a bullish market trend that investors may want to leverage. The immediate support levels identified are in the 21,200-21,000 range, with any dips below this potentially offering opportunities for investment in quality stocks. Conversely, the 22,000 mark is seen as a potential resistance level before the Nifty could aim for new highs.
Historically, budget announcement days have been marked by significant volatility. Share.Market Research from PhonePe Wealth Broking Private Limited highlights the Nifty50’s intraday movements of 2 to 3 percent on most budget days over the last decade. Given the tendency for the India VIX index to spike leading up to the budget and then drop, strategies focusing on volatility, rather than directional bets, have shown to be more lucrative. Through various tested strategies, such as shorting Straddles, Strangles, and Iron Condors, it was found that Short Iron Fly and Short Iron Condor strategies yielded profits in the majority of cases. These strategies, characterized by their hedge positions, have demonstrated their effectiveness in managing risk and capitalizing on volatility.
Jyoti Roy, Head of Equity Research at Sanctum Wealth, suggests that traders might consider positioning in capital goods, industrials, and infrastructure sectors ahead of the budget. These sectors stand to benefit from the government’s expected prioritization of capital expenditure aimed at bolstering infrastructure and industrial growth. Additionally, the extension and expansion of Production Linked Incentive (PLI) programs could present favorable conditions for the manufacturing sector.
In summary, as the financial community anticipates the Interim Union Budget 2024-25, the general advice is one of cautious optimism. Emphasizing strategic investments in sectors poised for growth and employing volatility-based trading strategies could equip traders and investors to navigate the potential market fluctuations surrounding the budget announcement. With a focus on long-term economic stability and growth, the upcoming budget presents an opportunity to align investment strategies with the government’s infrastructural and manufacturing priorities.