Expect Volatile Markets On Post-Budget Uncertainty

Today’s setup

Support and Resistance

Nifty: Major support is at 23000 and major resistance is at 23500.

Bank Nifty: Major support is at 49000 and major resistance is at 50000.

Sensex: Major support is at 77000 and major resistance is at 78000.

Put-call ratio and at-the-money (puts vs calls): 

Nifty: Overall 0.76 and at ATM 0.80 (neutral to beamish)

Bank Nifty: Overall 1.02 and at ATM 0.80 (neutral to bearish)

Sensex: Overall 0.80 and at ATM 0.92 (neutral to bearish)

The Nifty sees resistance at the 200-day exponential moving average (DEMA) perhaps as a reaction to the implications of Union Budget 2025 not being fully understood by the markets. Even thoughthe India VIX closed Saturday at 14.10, expect swings and momentum shifts today, as there is a high probability of portfolio rebalancing by investors.

It is important to note that many FIIs might not have participated on Saturday, as it was a holiday for FIIs. Therefore, the full impact of market sentiment will only be observed during Monday's trading hours.

The Gift Nifty is at 23567, in parity with the Nifty Futures close at 23560. Due to the crash in implied volatility, option premiums have also decreased throughout Saturday. It is advisable to observe the markets for the first hour on Monday and take cues from the developing price action, as no clear indications can be derived from the derivative data created on Friday and the minimal activity on Saturday.

With the budget event now over, markets will focus on fundamental issues of corporate profits. Many companies are still expected to report their results, and their commentary will be of interest to the markets.

Previous Day 

Spot
On Saturday, the Nifty spot closed the Budget session at 23842, lower by 26 points (-0.11%). The Bank Nifty spot closed at 49506, lower by 80 points (-0.16%).

The Nifty opened with a gap up of 20 points, while the Bank Nifty opened 5 points higher. The Nifty faced some initial resistance but recovered to reach its intraday high of 23632. It then faced resistance at the 200-day exponential moving average (DEMA) placed at 23610, possibly due to the impact of the budget speech, losing 250 points in the next 10 minutes. Subsequently, the Nifty experienced volatile swings, reacting to various budget provisions. It finally closed at 23482, with 20 out of 50 Nifty stocks closing in the green.

The Bank Nifty mirrored the Nifty's movement, reaching its day high of 50009 before crashing 600 points along with the Nifty's fall. It experienced wild swings, reaching its lowest point of 48925, more than 1000 points below its high, before closing at 49506. Five out of 12 banking stocks closed in the green.

The Nifty opened with a gap up of 20 points, while the Bank Nifty opened 5 points higher. The

The day's top gainers were Nifty Consumer Durables (+2.96%), Nifty FMCG (+3.01%), and Nifty Auto (+1.91%), while Nifty PSE (-3.06%) and Nifty CPSE (-2.81%) were the notable losers.

In the cash market, FIIs sold ₹1,327 crore of stocks, while DIIs bought ₹824 crore.

F & O
Foreign Institutional Investors remained neutral in Index Futures and are still 174,000 contracts short. Proprietary desks have reduced their contracts and are now 16,600 contracts long. Retail investors and Domestic Institutional Investors had negligible net activity in futures.

FIIs sold 5,300 calls and bought 5,300 puts, bringing their overall total to 99,000 calls short and 31,000 puts long. Proprietary traders have sold 60,000 calls and bought 26,000 puts, bringing their total to 92,000 calls short and 15,000 puts short. Retail investors bought 63,000 calls and 21,000 puts, bringing their total to 190,000 calls long and 48,000 puts short.

FIIs added another 6,000 contracts in stock futures, taking their total to 1.23 million. The India VIX decreased by 2.15 points (-13.23%) to close at 14.10. Vix, the Volatility Index, is a measure the risk perceived by the majority of market participants. Higher the Vix, higher the perceived risk. Historically Vix at normal times is between 10-15. Any increase in India Vix over this is perceived to be increasing volatility in the market, which can results in abnormal changes in the prices of options. 

The 6 February 2025 Nifty option chain reveals substantial call writing from the 23500 level up to 24,000. Significant put writing is observed at every level from 23400 down to 23000, where very high put open interest is expected, thus acting as a major support level. The 23500 level, with 7.7 million call contracts, will act as substantial resistance. The 24000 level, with 13.7 million call contracts, has the maximum open interest and will be a major resistance point.

For the Bank Nifty option chain (February Series), the 49000 level has the maximum put writing open interest and will be a major support. The 50000 level, having the maximum open interest, will be the resistance.