Budget 2025 | D-Street experts suggest trading strategy for Feb 1, reveal Nifty 50 key levels: Top sector picks

Budget 2025: Finance Minister Nirmala Sitharaman will present Union Budget 2025 on February 1 in the Parliament at 11 a.m. Ahead of the Budget, the Economic Survey 2025 was tabled today, kicking off the first part of the Parliament’s budget session. The Eco Survey indicated that the Indian economy will grow nearly 6.3-6.8 per cent in 2025-26, driven by robust fundamentals, measured fiscal consolidation, and private consumption.

The Indian stock market will remain open on February 1, 2025, despite being a Saturday. Leading stock exchanges BSE and NSE will observe regular trading activities on account of the Union Budget 2025-26. Ahead of Budget 2025, D-Street experts suggest investors should follow a conservative approach to trading and focus on fundamental stocks/sectors that align with government policies.

Historically, the Indian stock market has exhibited significant volatility during the Union Budget speeches. In 12 out of the last 14 instances, the Nifty 50 index has shown intraday fluctuations within a narrow two-to-three per cent range.

Also Read: Expert View | Budget 2025 is a single event in broad cycle; Market rebounds reward patient investors: Vaibhav Porwal

Budget 2025 Expectations from D-Street Experts

Focusing on fiscal consolidation could limit government spending, impacting growth expectations in consumption-driven sectors. However, according to Sonam Srivastava, Founder and Fund Manager at Wright Research PMS, prudent fiscal measures may lead to a stable macroeconomic environment, benefiting banking and NBFCs through improved credit quality and lower systemic risks.

The general market has shown tentative signs of relief following the Reserve Bank of India’s announcement to purchase G-sec securities worth ₹60,000 crore through open market operations in three tranches. “This may improve liquidity in the equity segment. The market remains extremely oversold, especially after the panic on January 27,” said Kushal Gandhi, Technical Analyst at StoxBox.

Also Read: Expert View | Pro-growth policies, clarity on long-term taxation in Budget 2025 to stabilize markets: Narinder Wadhwa

How should traders approach markets on February 1?

Budget announcements often lead to heightened volatility due to speculation and knee-jerk market reactions. Analysts say investors can protect themselves by maintaining a balanced portfolio with exposure to diversified equity, debt instruments, and gold. It is advisable to hold cash reserves for post-budget opportunities and avoid speculative trades in the run-up to the announcement.

According to Sonam Srivastava of Wright Research PMS, gold and short-duration debt funds will likely offer the best risk-adjusted returns in the pre-budget phase, providing stability amid uncertainty. Once clarity emerges post-budget, investors can reposition towards equity themes aligned with the announced policies.

Approximately 90 per cent of NSE-listed stocks are trading below key moving averages such as the 10, 20, and 50 DMA, indicating that the near-term incentive for adding short positions is relatively low. Acknowledging the potential for high volatility in the current market environment is important.

“With events such as the Union Budget on the horizon, there is a considerable likelihood that volatility may increase further. Therefore, taking a prudent approach and implementing disciplined risk management strategies when engaging with the markets on February 1 is advisable,” said Kushal Gandhi of StoxBox.

Also Read: Union Budget 2025: Top 10 moves that could benefit every middle-class homebuyer

Top sectoral picks for February 1

The upcoming budget will likely focus on welfare measures, agriculture, infrastructure development, and a continued push for manufacturing under the PLI (production-linked incentive) scheme. Sectors such as agriculture, agrochemicals, infrastructure, and capital goods could see significant benefits. Renewable energy and healthcare may also gain attention as part of broader structural reforms.

Investors can position themselves by looking at quality stocks in these sectors, particularly companies with strong fundamentals that are well-aligned with government policies. Agriculture-focused funds, infrastructure ETFs, or stocks of leading players in agrochemicals and capital goods could offer opportunities. Additionally, staying diversified across these themes while monitoring the budget announcements can help investors capitalize effectively.

Consumption-driven industries may face a temporary slowdown if there are fewer direct stimulus measures, but focusing on rural welfare and income-boosting schemes could offset some of this pressure. Long-term investors in these sectors should focus on companies with strong balance sheets and resilient business models.

Key levels for Nifty 50, Sensex on February 1

According to Kushal Gandhi of StoxBox, it is important to note that the benchmark indices continue to operate within a no-trade zone, with immediate support near 75,265 and resistance near 77,340 in the Sensex. A decisive close above 76,740 is expected to reduce the likelihood of further drawdowns in the intermediate trend. 

“Additionally, a close above 77,340 for Sensex would likely bolster bullish sentiment and enable the index to test the upper resistance level of 79.200. Also, the NSE Nifty 50 index remains in a no-trade zone, with immediate support located around 22,800 and resistance near 23,420,” said Gandhi.

“A decisive close above 23,050 is anticipated to decrease the chances of further drawdowns in the intermediate trend. Furthermore, a close above 23,420 could strengthen bullish sentiment, allowing the index to challenge the 50 DMA, which is acting as overhead resistance near 23,820,” he added.

Also Read: Budget 2025: Dharmesh Shah of ICICI Securities reveals key Nifty 50 levels, trading strategy, sectors to watch out for

Budget-day Trading Strategy

If the scenario unfolds in Sensex ahead of the budget day, StoxBox recommends that investors consider initiating hedged long positions on the budget day after 12 PM, provided that the intraday momentum favours buyers. According to Kushal Gandhi, it is advisable to set a strict stop loss near 76,000 and aim for a target price of 79,200, followed by 79,500.

According to Sujit Modi, CIO, Share.Market, a common trend observed is that the implied volatility (IV) of options rises in the days leading up to the Budget but subsequently declines sharply during the speech.

Given this pattern, instead of adopting a directional strategy (delta-based approach), traders may find implied volatility (vega-based) strategies more profitable, capitalizing on the expected IV crush.

Sujit Modi’s strategy testing and backtesting conditions–

To validate this hypothesis, Modi said he tested multiple option strategies, including:

Short Straddle, Short Strangle

Ratio Spreads, Ratio Back Spreads

Butterflies, Batman, Jade Lizard, etc.

Entry time: 9:30 AM | Exit time: 3:25 PM

Strike selection: Dynamic, based on the combined premium of short and long legs

Built-in risk management through strategic hedging

Also Read: Trade setup for Budget 2025: How to trade Nifty 50 options? Rahul Ghose suggests this trading strategy for 1 February

Results and key findings–

The Short Iron Fly and Short Iron Condor strategies emerged as the most consistently profitable, succeeding in 13 out of 14 instances.

Short Iron Fly: ₹1,746 ( July 2024 )

Short Iron Condor: ₹780 ( July 2024)

In 2021, Nifty 50 experienced an outlier move of 4.74 per cent, leading to higher-than-usual losses.

However, even in this extreme scenario, losses remained controlled due to the protective OTM hedge:

Maximum loss on Budget Day 2021.

Short Iron Fly: Max loss ₹5,300 per lot

Short Iron Condor: Max loss ₹3,050 per lot.

“Given the historical tendency for volatility to contract following the Budget, Short Iron Fly and Short Iron Condor are potentially effective vega-based strategies for Budget Day trading,” concluded Sujit Modi.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.