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Nearly Rs 10 lakh crore gone ahead of Budget: what should be your investment strategy?

The trading strategy on the Budget Day should be to pick stocks from their support levels and keep an eye on reversal patterns instead of picking stocks which are trading in a range or are at higher levels.

January 29, 2021 / 01:06 PM IST

Five days of the selloff on D-Street pushed Sensex and Nifty50 below crucial support levels. The S&P BSE Sensex plunged more than 3000 points since January 20 while Nifty50 is down by about 1000 points in the same period.

The average market capitalisation of the BSE-listed companies fell by about Rs 10 lakh cr in just five sessions. The market capitalisation of the BSE-listed companies fell from Rs 197.70 lakh cr to Rs 188.13 lakh cr as of January 28, 2021.

The fall in markets can be largely attributed to the selloff by foreign investors who were net sellers to the tune of more than Rs 5100 cr in the last five trading sessions.

Weak global cues, as well as uncertainty around Budget 2021, also weighed on the sentiment of an overbought market. Experts advise investors to stay neutral ahead of the Budget 2021 on 1st February and watch out for crucial levels on either side.

Wild gyrations cannot be ruled out on Budget Day; hence, traders should trade light. The next big support for the index is placed around 50-Days EMA placed at 13700 levels. A break below this level could fuel further selling pressure.

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“Nifty has undergone a significant amount of correction in this week with FII’s remaining net sellers. The benchmark index ended lower for four consecutive trading sessions. The psychological support level of 14,000 was breached. This correction was long due in the market,” Gaurav Garg, Head Research, CapitalVia Global Research Limited told Moneycontrol.

“The volatility index has increased from 22.42 to 24.29. This is expected to increase further ahead of the Budget. The trading strategy on the Budget Day should be to pick stocks from their support levels and keep an eye on reversal patterns instead of picking stocks which are trading in a range or are at higher levels,” he said.

We have collated views from various experts as to what should investors/traders do in the run-up to Budget 2021:

Abhishek Chinchalkar, CMT Charterholder and Head of Education, FYERS

We have seen very volatile moves, particularly in the Indian markets, over the past few sessions. While Nifty formed a Doji on Thursday, there is one more trading session left for the week as well as for the month to end.

The movements in our market next month are likely to be influenced by the outcome of Budget 2021, set to be presented on February 1st.

On Budget day, we would suggest traders remain light on positions, as volatility tends to be pretty high over the course of the day. This has also been the case on the prior two occasions, wherein markets were sold off sharply on the day of the Budget. Over the next two trading sessions including the Budget day, one needs to observe how Nifty trades near today's low, as this also coincides with the 50-day moving average.

If the index stabilizes above this level, recovery can be expected in the short-term towards 14400-14500. However, if the index fails to hold this level, the decline could accelerate towards 13100.

Nagaraj Shetti, Technical Research Analyst, HDFC Securities

The short term trend of Nifty continues to be negative. But, having placed at the crucial support of 13750 (10 weeks EMA) and a formation of Doji/high wave type pattern (on the daily chart) could hint at the possibility of upside bounce from the lower levels, post-confirmation.

A decisive move below 13750 is likely to negate this positive development and could lead towards a further low of 13500. On the rise, the upper area of 13950-14000 could act as a stiff resistance.

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities

The index bounced back after testing the big support of the 50-day SMA. The index has established a long-led dodge, indicating that the market has taken a break after falling below the high of 14750/50185.

Based on this, the market may either continue the rally going southward or it may turn back. In short, the market would return to trending mode in the next day or two.

On the upside, 13930/47000 would be a big hurdle and support would be at the 13680/46500 level. If the Nifty/Sensex closes above or below the given level, it would move up to 400 to 500 points on either side.

Traders need to be level based and investors would have the opportunity to invest in strong companies with a medium-term outlook (1 to 3 weeks).

Binod Modi, Head - Strategy at Reliance Securities.

While the government is expected to announce strong measures or reforms to address demand issues and give a further push to economic recovery, it is going to be a tough task for the government to meet the expectations of all industries given fiscal constraints. Hence, volatility can be seen at a higher level.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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