Most derivative analysts have advised their clients to take positive positions on the market ahead of Friday’s Budget. The optimism has more to do with the market trend being positive and less with high expectations from the Budget.
“Nifty has been in a positive trend after it recently touched its 200 DMA (daily moving average). After Thursday’s RBI status quo on rates, the drop was sharp,” said Yogesh Radke, head of quantitative research at Edelweiss Financial Securities.
“We have a positive bias on the market and expect the Nifty to be in the range between 5,600-5,700,” said Savio Shetty, strategist (institutional derivatives) at Prabhudas Lilladher. “In the event the Budget is not good, we don’t expect the Nifty to go below 5,100.” The Nifty on Thursday snapped its four-day gaining streak to close 1.5 per cent lower at 5,380.50. The index had gained nearly five per cent in the past four trading sessions.
India VIX, an index that tracks market volatility, rose 2.83 per cent to 25.42 on Thursday. The rise in the VIX index shows options have turned expensive. In other words, the cost of hedging against losses in the Nifty has risen.
Derivative analysts say the market could be choppy on Budget day. “Implied volatility of Nifty options is around 26-28 per cent ahead of the Budget tomorrow. Long implied volatility bets indicate the market could move in either direction sharply,” said Radke. Siddharth Bhamre, head of derivatives at Angel Broking, who has advised clients to go long on the market, said “We don’t see a big downside in tomorrow’s session. The market trend continues to remain positive.”
Shetty has recommended a ‘bull spread’ strategy to his clients. “We have asked clients to go long 5,600 and short on 5,700 calls, at the same time write 5,100 puts. The strategy would make profits if Nifty goes above 5,600. It will only incur a loss only when the index goes below 5,100.”
Radke believes the trend to stay positive till the Nifty stays above 5,354, which is its 21-day DMA. “If the Nifty slips below 5,354, it can trigger a sharp downside to 5,165-5,200 levels once again.”
