While a pre-budget rally is more of less out of the question, past history shows the ten days prior to budget are normally good.
A DNA Money analysis of data for the past 10 years show that, while the markets performance 30 days prior to budget has not been great at a negative 0.80% on an average, the 10-day period prior budget has been little better delivering flat returns.
K Anant Rao, Dwaipayan Poddar and Manoj Kumar Manish of Karvy Stock Broking in a report on Monday said the caution is slightly overhyped and advise investors to take calculated bets to take advantage of likely market upside.
“This caution or low implied volatility (IV) in general is blinding people from taking a bullish view on the market before an event like budget. Hence we won’t be surprised to see an uptrend from as early as next week,” they wrote in a note.
“Market participants are not long-heavy this time, but have hedged their cash positions by shorting futures. Also, there are still some short positions in midcaps,” said Siddarth Bhamre, head - derivatives, Angel Broking.
Benchmark indices have lost nearly 2% so far in February.
The current low implied volatility also points towards cautious stance adopted by market participants.
“Nifty’s IV at present is under 14% which happens to be the lowest IV in the month of February since 2002. This clearly indicates that the overall mood is cautious in the markets and mass participation may not emerge till the time there is clarity,” wrote K Anant Rao, Dwaipayan Poddar and Manoj Kumar Manish of Karvy Stock Broking in a report on Monday.
However experts believe that correction may be over for now and we may witness flat to positive bias in coming days, given that Nifty has corrected 200 points from their recent highs.
“ Its likely that budget may surprise on the positive and that may change the mood. We believe that implied volatility is expected to rise prior to budget day. Though it doesn’t look like markets may rise significantly, but markets are expected to see positive bias,” said Bhamre.