Retail investors, high net worth individuals (HNIs) and proprietary traders have created derivatives positions that indicate that the stock markets could move within a 4% range on Saturday, when Union finance minister Nirmala Sitharaman presents the Budget for fiscal year 2025-26.
The positions were created on a day the markets rose for the fourth straight session. On Friday, the Nifty50 settled 1.11% higher at 23,508.4 points while the Sensex ended 0.97% higher at 77,500.57.
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Broader markets like the Nifty Midcap 150 and the Nifty Smallcap 250 outperformed, rising 1.7% each amid optimism that Sitharaman would announce some form of stimulus or tax breaks for low and middle-income taxpayers who have been singed by poor wage growth and high inflation.
Markets will also keep a close watch on announcements to boost economic growth, which at an estimated 6.4% for the current fiscal is much slower than 8.2% in FY24.
If the markets move per the positions created by these investors and traders, the Nifty and Sensex could test their 200-day simple moving averages (SMA), which they trade below currently.
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Nifty 200 DMA was at 23,998.85 and Sensex was at 78,881 as of Friday, per Bloomberg.
On the flip side, markets could also slip 2% from Friday’s closing in case the budget disappoints.
The levels are arrived at by adding the last traded prices of the 23,500 call and put options expiring on 6 February.
This price works out to ₹488 a share either ways (75 shares make one Nifty contract) from the Nifty closing of around 23,500 level. The range factors in Nifty moving between 23,012 and 23988 on Saturday.
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‘Baking in tax relief’
“Markets seem to be baking in tax relief or social spending over capital spending to give relief to the lower and middle income earners,” said Nitin Jain, CEO, Kotak Mahindra Asset Management Singapore. “If something like that were to materialise, it would be positive for investor sentiment.”
“But,” cautioned Jain, “the room for relief is limited by fiscal constraints with the fiscal deficit on a declining trend.”
Fiscal deficit, or excess of government spending over revenue, is likely to be 4.5% of GDP in FY26, lower than the estimated 4.9% in the current fiscal year.
Market sentiment rose on Friday after Prime Minister Narendra Modi’s comment about Goddess Lakshmi blessing the poor and middle-class Indians in an interview to TV channels early in the day.
According to Jyoti Jaipuria, founder and managing director of portfolio management services provider Valentis Advisors, the government could divest small stakes in public sector enterprises and use the same for capital expenditure.
“While expanding economic growth through non-tax revenue is something that could excite the Street, a tax break alone would have a limited and short-lived impact,” he said.
Indian markets have been rocked by foreign portfolio investors selling more than ₹1.9 trillion in the secondary markets since October, after economic growth slipped to a seven-quarter low of 5.4% in the three months through September, corporate profitability declined, and US bond yields rose on concerns over the inflationary impact of President Donald Trump’s increased tariffs on trading partners.
This selling has caused the rupee to fall by 3.35% to 86.62 to the dollar since September-end. The FPI selling has resulted in Nifty correcting 10.5% from a record high of 26,277.35 on 27 September to 23,508.4 on Friday.
