Budget on 1 February 2021 What You Can Do

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Article written on: Monday, 25-Jan-2021

All stock traders small, big and HNIs even FIIs will keep an eye on on the Budget that will be presented by Finance Minister Nirmala Sitharaman on February 1, 2021. The Budget is being presented at a difficult juncture for the economy. According to the first advance estimates, India’s economy is projected to contract by 7.7 per cent in 2020-21.
This budget will be presented in a very interesting situation as far as stock markets are concerned.

Why?

First, read the above paragraph. I repeat – This Budget 2021, is being presented at a difficult juncture for the economy. According to the first advance estimates, India’s economy is projected to contract by 7.7 per cent in 2020-21.

Now see this – Indian stock markets are trading at the all-time high range:

Nifty EOD 25-Jan-2021

See the above image of stock markets and now see this graphical representation of GDP of India since Jan 2018.

India GDP Growth Annual

I am sure you must have read on other websites that markets may see a crash.

What is a Stock Market Crash?

A crash is official if the stock markets fall 10% since its recent high within 2 monthly expiry or 60 days.

Recent high for Nifty was 14600 approx. So 14600 – 10% = 13,140. It means if Nifty reaches 13,140 by end Feb 2021 – it will be an official crash.

Will that happen?

Well, this is tricky – so-called experts tell you and confuse with a lot of jargon and then say yes or no.

My suggestion – if you are unable to take the risk – please wait for now and do not trade. Waiting for a few days to trade, will not make you a bankrupt. But one mistake may make you lose a few thousand rupees. Of course if you hedge and trade then fine you can because the risk is limited anyway. When the risk-reward favours risk more and reward less, like 10 days before and after the budget or any major event, it’s better to halt trading. Sit and watch the markets. Read as much as possible about the budget impact and related news, then make a decision once the weather clears.

Here is what may happen after the budget is announced and is in public domain

If the budget favours the middle class and rich (unfortunately markets do not care for the poor), it may cross 15,000 and if it’s bad for them 13,500 will be breached on the downside.

On top of that India VIX will now rise till the budget day – February 1, 2021, and will start falling from the next day.

Here is India VIX EOD 25-Jan-2021:

India VIX 25-Jan-21

So what will happen?

February 21 month’s option premiums will not decrease fast like normal days until the budget day 1-February-2021. If you are an option buyer you MAY benefit – if you are a seller please wait till the budget day, and then sell.

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