Time for caution? 5 charts which show that Nifty Fut OI declines once the Budget is out

During the last few weeks prior to the release of the 2013 Budget on February 28, 2013, the Nifty Fut OI gradually rose and peaked on the day prior to the release of the budget. During the same period, the Nifty was in decline mode. Once the Budget was released, the OI crashed and markets continued to drift lower for a few more days.

The OI PCR and basis were declining in the month of February on the back of declining markets and rose once the budget was released and markets started trending higher.

2014 Budget announced on July 10

During the last few weeks prior to the release of the 2014 Budget on July 10, 2014, the Nifty Fut OI gradually declined and was flattish around Budget time indicating that the Budget event did not create any major market anticipation. The Nifty too was not very volatile during this budget period and was gradually rising.

The OI PCR and basis were declining in the month of July on the back of declining OI and rose once the budget was released, though at different times.

2015 Budget announced on February 28

During the last few weeks prior to the release of the 2015 Budget on February 28, 2015, the Nifty Fut OI gradually rose and peaked on February  2015 just a few days prior to the release of the budget. The OI again picked up and started rising after the Budget was released, though it started declining a few weeks later on the back of a declining Nifty.

During the same period, the Nifty was trading in a volatile range and mirroring the movements of the OI, indicating that a majority of the positions were on the long side. The OI PCR and basis were declining in the month of February on the back of declining markets and rose once the budget was released and markets started trending higher.

2016 Budget announced on February 29

In the above chart, we can observe that OI was gradually rising for the last few weeks before the Budget indicating that traders were building positions ahead of the Budget to be announced on 29th February 2016. This trend is similar to that seen in the last few years (Except 2014, when the Budget was expected to be a non-event). The rally seen in the Nifty just prior to the Budget suggests that traders were building long positions.

The OI PCR, Basis and IV, however, were all in decline mode for the last few weeks indicating a negative bias. In the past, we have observed that these derivative indicators tend to mirror the movements in the Nifty rather than be impacted by the Budget event.

2017 Budget announced on February 1

In the above chart, we can observe that OI is gradually rising for the last few weeks before the Budget indicating that traders were building positions ahead of the Budget announced on February 1, 2017. The rally in the Nifty suggests that traders were building long positions.

The OI PCR, Basis and IV were all in rising mode for the last few weeks prior to the Budget announcement, indicating a positive bias. The OI PCR declined sharply post the Budget, but once again picked up as the markets continued to rally.

2018 Budget to be announced on February 1

In the above chart, we can observe that OI is gradually rising for the last few weeks indicating that traders are building positions ahead of the Budget to be announced on February 1, 2018. This trend is similar to that seen in the last few years (Except 2014, when the Budget was expected to be a non-event). The recent rally in the Nifty suggests that traders are building long positions.

The OI PCR too is in rising mode and the Basis has started rising recently indicating a positive bias. In the past, we have observed that these derivative indicators tend to mirror the movements in the Nifty rather than be impacted by the Budget event.

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