Union Budget 2025: What To Expect From Trading Session As Nifty 50 Prepares For Volatility

The trading sessions on the day of the Union Budget are typically marked by sharp fluctuations, significant volatility, and stock-specific movements.

As trading commences today, ahead of Finance Minister Nirmala Sitharaman's presentation of the Union Budget 2025, market participants should brace for continued volatility.

Photo Credit: PTI

Pre-Budget Market Trends

Ahead of Union Budgets, domestic equity markets generally experience a notable pre-budget rally, with traders and investors directing funds into stocks and sectors expected to benefit significantly from budgetary announcements.

While the markets have risen by two percent over the past five sessions, the Nifty 50 has declined by one percent so far this year, reported Moneycontrol.

In the previous session, markets saw a sharp rally, driven by optimism surrounding the Economic Survey 2024-25, which reinforced confidence in India's economic fundamentals. The survey suggested that the current investment slowdown is temporary.

The absence of a broad-based pre-budget rally increases the likelihood of a post-budget surge, particularly if the government introduces measures to stimulate growth, such as personal income tax reductions and increased capital expenditure.

However, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, cautioned that the budget's impact may last only a few days at most.

Market Volatility on Budget Days

Sharp price movements and heightened volatility are expected in today's trade. Data compiled by Moneycontrol indicates that the Nifty 50 index typically records a 2.4 percent difference between its intraday high and low on Budget days.

The volatility index, India VIX, is also likely to remain elevated.

High volatility often brings sudden reversals. Therefore, traders should implement strict stop losses and employ strategies that benefit from decreasing volatility.

Market Outlook and Technical Indicators

The Nifty 50 index recorded its largest single-day gain since 2 January and formed a strong bullish candlestick pattern on daily charts.

Furthermore, as the index closed above the lower high of 21 January (23,426), it suggests a reversal of the bearish pattern of lower highs and lower lows observed over the past month, indicating a bullish trend.

The Nifty Put-Call Ratio (PCR), which reflects market sentiment, rose to 1.01 on 31 January from 0.97 in the previous session. A PCR above 0.7 or exceeding 1 indicates that traders are selling more Put options than Call options, often signifying a strengthening bullish sentiment.

Nifty 50's Performance on Budget Days

Over the past decade, the Nifty 50 has closed in negative territory six times on Budget day. In the last three years, the index has ended in the red.

Only on three occasions has the Nifty closed more than one percent higher, whereas it has fallen over one percent on two occasions.

The most significant rally occurred in 2021 when the Sensex surged by 5 percent and the Nifty rose by 4.74 percent following a growth-focused budget.

In contrast, markets suffered declines exceeding 2 percent in 2019 (following the full Union Budget) and 2020, primarily due to negative reactions to tax changes and global uncertainties.

Investor Strategy and Market Drivers

A combination of global and domestic factors-including the Reserve Bank of India's upcoming monetary policy meeting, US trade policies under Donald Trump, and the ongoing corporate earnings season-will influence market movements.

Additionally, macroeconomic indicators such as GDP projections and inflation estimates will be key factors to monitor.

Experts advise investors to adopt a flexible approach, seeking strategic opportunities rather than making aggressive trades during the special Budget trading session.

Although the markets have posted gains, continued selling by foreign institutional investors (FIIs) remains a concern. To confirm a sustainable rally, traders should wait for the Nifty 50 index to close above 23,500.

A decisive close above this resistance level would help counter the prevailing bearish sentiment.