Indian equity markets entered Union Budget 2025 with bullish momentum in the short term, but derivatives positioning reflected a cautious stance from FIIs, with net short positions still holding in index futures. While NSE Nifty 50 and Bank Nifty extended their recovery in the last session, traders are bracing for heightened intraday volatility, as large institutional investors adjust positions in response to Budget announcements.
FII positioning and market activity
Foreign institutional investors (FIIs) remained net sellers in the cash market, offloading Rs 1,189 crore worth of equities on 31 January, while domestic institutional investors (DIIs) provided support with net buying of Rs 2,232 crore, according to exchange data.
In the derivatives market, FIIs continued to hold a net short position of 3.1 lakh contracts in index futures, reflecting a cautious stance ahead of the Budget, according to ICICI Securities. This was a marginal decline from 3.5 lakh short contracts earlier in the week, indicating some short covering in the last few sessions. However, the overall positioning suggests that FIIs were still hesitant to build aggressive longs before the key event.
In the stock futures segment, FIIs bought 72,224 contracts on 31 January, signaling selective accumulation. Meanwhile, in the options market, FIIs sold 109,524 call contracts and 104,385 put contracts, indicating active hedging and adjustments ahead of expected market swings.
Futures and Options setup and open interest trends
Derivatives positioning at the close of 31 January pointed to a gradual long buildup in Nifty futures, with February futures rising 0.86 percent and combined open interest across current, next, and far series increasing by 3.13 percent, according to Sudeep Shah, head of technical and derivatives research at SBI Securities.
Among Nifty constituents, 16 stocks witnessed long buildup, 25 stocks saw short covering, 5 stocks registered short buildup, and 4 stocks saw long unwinding.
Options data reflected a tight trading range, with strong resistance at 23600-23700 on the call side and firm support at 23500-23400 on the put side. The Put-Call Ratio (PCR) for the weekly series stood at 0.89, while for the February monthly series, it was at 1.14, reflecting a higher put concentration in the monthly series.
Bank Nifty positioning and options data
Bank Nifty has seen stronger outperformance, with persistent long positions building up, according to Shah. The index formed an Adam & Adam Double Bottom pattern on the daily chart and closed above its 20-day EMA for the second straight session.
OI data for Bank Nifty showed significant call writing at 50000 strike, with open interest of ~8 lakh shares, while put open interest at the same level stood at ~6 lakh shares, according to ICICI Securities. This suggests that traders expect 50000 to act as a key resistance zone, while 49000 remains a crucial support level.
For a meaningful recovery, ICICI Securities said that Bank Nifty needs to sustain above 49500, as the index has witnessed a build-up of short positions, with open interest at its highest level since August 2024.
Technical levels to watch
From a technical perspective, Nifty ended the last session above its 20-day EMA for the first time in 20 sessions, a signal that the short-term downtrend was weakening, Shah said. The weekly RSI rebounded from the 40 level, a key support in bullish phases, and was close to forming a bullish crossover.
Shah identified 23600-23650 as the next major resistance zone, aligning with the 200-day EMA. A sustained move above 23650 could extend the rally to 24000, he added. On the downside, support has shifted higher to 23270-23250, with a breach below 23250 likely to trigger a deeper correction towards 22800-22770.
In Bank Nifty, the 49700-49800 range represents the neckline of the double-bottom pattern, and a breakout above this could fuel a rally toward 50225-50600. Meanwhile, 49100-49000 zone remains the immediate support.
Budget Day expectations for Nifty and Bank Nifty
Heading into the Budget, market positioning suggests short covering in recent sessions, but FIIs remain net short in index futures, reflecting cautious sentiment. With key technical levels in focus and derivatives positioning showing active hedging, intraday volatility is expected to remain high, with traders watching for large directional moves based on fiscal policy announcements, said brokerages.
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