Budget Tomorrow

Finally the D-day is here. All preparations have been done and the great General Budget Circus will play out tomorrow. Hope it does not create a storm the way Rail Budget did which you would know if you are not in the jungles of Amazon... As I said, Mr. Trivedi has definitely appealed to a rational mind. His new statement that he does not want Indian Railways to go Air India way speaks a lot about how practical and pragmatic this fellow is. There are not many people who would understand, care to admit and defy someone like Mamata for this. He is definitely a 'like' on FB from me.

Coming back to General Budget, then today's Economic Survey had all the predictable information and hardly anything new was mentioned. It is hopeful that Growth will pick up and rates will drop. Zee News gave good summary of Economic Survey highlights and it can be seen here.

Disclaimer: I am not related to Zee News and I gave the link just because I liked it.

On the sidelines, RBI's monetary policy meeting too ended without any action (a.k.a. rate cut) however the statement made by them raises the hope that there can be a rate cut when they meet again in April. That will be a good move for economy as well as for home loan holders (I included). Present high bond yields are a deterrent in the form of high borrowing cost for everyone and it needs to come down.

As for the budget tomorrow... Fiscal Deficit Target of 4.6% seems like stuff of dreams as of now and it will be violated by a wide margin. Situation is not expected to improve with Brent Crude near $125 and Rupee at 50 vs Dollar. Various commodities (of which we import a lot) are also getting dearer. 2G Spectrum sales may bring some respite and additional much needed mullah for Government in next fiscal. Still the target deficit in next fiscal may not be less than 5%.

Economic Survey showered lot of praise on Services Sector and there are chances that it may see some positives. Increase in Import Duty for some goods is also on cards particularly for our imports from China. That may be good news for domestic Telecom and Power companies. However, the largest beneficiary of this budget may actually be the common man for a change. With the drubbing that Congress got in latest elections, it may try to woo back it's middle class vote bank through budget. Specifically because of this reason, there may be some stupid populist move in budget which may put off the market. Abolishing STT (highly unlikely) is the kind of move which can really propel markets to upside.

Lets see if NIFTY Chart gives any clue...

NIFTY is at 21EMA and I feel that we may see a bounce back tomorrow. As for trading, I will prefer if you revisit the Straddle and Strangle Posts before deciding anything.

NIFTY 5400 Call is at 118 and 5200 Put is at 42. This Strangle will have upper break-even at 5560 and lower break-even at 5040 level of NIFTY if you carry them till expiry. Now I don't expect we will see these levels immediately but booking half of the gain of one of the position tomorrow itself during the day can be a good strategy. I mean to say that if you enter in to this (or similar) Strangle tomorrow morning and then during budget book profits partially on one of the position to cover most of your costs could be one way of trading budget (I am kicking myself for not making this post yesterday so that we could have entered today itself). E.g. if NIFTYgoes up by a modest 50 points and Call Option Premium is now at a level which also covers your Put Option Premium, you can square off half of your position to recover your monies and let the remaining position wait for a suitable time before expiry. I am asking you to book some profit because Budget moves can be real ephemeral and gains can be made or lost quickly and as usual I like to play safe.

Will post tomorrow during trading hours if something worth mentioning comes up. Wish you good luck for tomorrow and have a happy budget. Happy Trading goes without saying.