Trading the Budget

Gurumurthy K Yoganand D | Updated on January 20, 2018 Published on February 28, 2016

And the winner is…no, we are not talking of the Oscars but of people who steal the show on the D-Street. Gurumurthy K and Yoganand D sound out traders who bet on previous Budgets and are gearing up for B-Day

‘I go only for Nifty options’

Sakthivel Nathan, a Chennai-based network engineer, has been trading the markets, and the Budget, for over a decade now. The last three Budgets have been good for him, the rest weren’t bad, but he considers trading on that day an invaluable experience. Sakthivel prefers to trade only on Nifty options. He gives an emphatic No to trading stock futures and options on Budget day. But why does he prefer only the index options?

“Due to liquidity issues, the spread — the difference between the best buy and the best sell price — is higher for the stocks. But for Nifty, the spread remains low. Also, speculative bets by people with deep pockets are more likely in stocks whereas it is tough to do the same in Nifty,” explains Sakthivel. So, how does he approach and trade the index options on Budget day?

Follow the first trend

He says the first trend on the day gives a hint on where the market is going to end for the day. According to him, there will be an initial reaction to the headlines, which will be followed by an opposite move later and then the market usually goes back along the initial move. “There is always a move on both sides, because it takes time for people to go through and understand the fineprint and study the impact before reacting accordingly,” says Sakthivel.

He doesn’t expect a very populist Budget today as the elections are still three years away. However, he thinks this Budget could be positive for stocks in PSU banks, metals and mining, infrastructure and renewable energy, such as solar power, and he expects the Nifty to close in the green today. He looks to bet on State Bank of India, Monnet Ispat, JP Power, Coal India and NMDC from a long-term investment perspective.

As a trader, he has his own wishlist from this Budget. He wants the securities transaction tax (STT) to be reduced and the dividend distribution tax (DDT) to be abolished. Do not carry any overnight positions heading into big-event days and do not approach Budget day with fear and greed.

‘Be ready for volatility’

Ramkey Ananthakrishnan, who has 20 years of career experience across 10 countries, has come back to Chennai. He now provides personalised wealth management solutions to individuals. He believes that on Budget day, there will be no single trend and volatility is the name of the game. “Given the global turmoil, this year won’t be any different and more volatility is expected this year too,” he asserts.

Last year, he had bets on Bank Nifty but this year he would prefer to stay away from it. “With all the issues in public sector banks, I wouldn’t be looking at Bank Nifty this year,” says Ramkey. Instead, he is interested in stocks linked to the domestic economy, such as Capital Goods and Infrastructure stocks, with good management and an established business.

Ramkey wants to bet on Larsen and Toubro, BEML, Ultratech and Texmaco this Budget. He likes taking speculative bets the day before the Budget, carry over night positions into the big day and watch the Budget speech closely for further opportunities.

He prefers to trade in options than in futures or the cash segment. “A good trader always needs to look for opportunities to make money but at the same time he has to protect the downside as well,” says Ramkey, to justify his stance. According to him, unless the Finance Minister comes out with an outstanding Budget, the market is expected to trade negatively post the Budget and he would approach the market accordingly.

‘My bet is on PSU bank stocks’

Vikrant Sharma, Senior Manager – Treasury, in a Kolkata-based company, has actively traded over the past four Budgets. He prefers to trade in options where the downside risk is limited. Barring last year’s Budget when the markets ended marginally on a positive note and he made a loss, in other Budgets he has made money. The positive momentum prevailed for a few more trading sessions after last year’s Budget was presented, he recalls. However, Vikrant says, “in the other Budgets I had short positions and the markets also ended in the red those days and gave me profits.”

Vikrant says he has learnt two main lessons from Budget day trading. First, Budget is a one-day event and it is always better to exit most positions on the same day, especially positions in options, as the value will go down on holding it further. Second, it is always better to trade in options rather than cash or futures as one would know the maximum loss if the trade goes wrong.

Putting away the mobile

How does Vikrant prepare for B-Day? He says he likes to stay calm ahead of the Budget speech and puts away distractions such as mobile phones. “The most important thing is to stay calm and listen to the Budget speech rather than anyone else. The Finance Minister gives enough insights to make a good trading strategy,” he states.

On Budget day, he predominantly trades in Indices through options. He prefers to bet on banking stocks as they are the barometer of the economic situation in a country and the Budget has a direct impact on them. Plus, they are very liquid counters on both futures and options. He expects a lot for the banking sector in this Budget. “A lot has been spoken about banks and their capitalisation. So to play banking stocks ahead of the Budget is not a bad idea. And most of the times it is a buy on rumour and sell on the news. So, for this Budget, I am initiating shorts or buying puts on major PSU banks.”

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