Budget 2025 Technical Strategy: Volatility likely to persist; key Nifty, Bank Nifty levels to watch out for

Budget Technical Outlook: As the Union Budget 2025 approaches, volatility remains a key concern. According to Motilal Oswal Financial Services (MOSL), the index has been forming lower highs and lower lows on monthly and weekly charts, witnessing a sharp correction of around 3,500 points from 26,277 to 22,786 over the last four months.

MOSL noted that India VIX, a measure of market volatility, has surged from 13 to 19 levels in the past five weeks, contributing to erratic swings with a negative bias. This rise in volatility follows a strong rally of 9,450 points in Nifty from 16,828 in March 2023 to its peak at 26,277 in September 2024. The 38.2 per cent retracement of this entire rally stands at 22,666, which MOSL considers a critical support level to hold amid market uncertainty.

Foreign institutional investors (FIIs) continue to play a crucial role in market stability, said the brokerage. MOSL highlighted that the FIIs’ Long-Short Ratio is currently around 20 per cent, which is at the lower end of the range, indicating light positions by foreign market participants. However, consistent selling pressure from FIIs in the cash market remains a major concern, adding to the market’s instability.

For the first time in 23 years, Nifty has recorded four consecutive months of decline. MOSL pointed out that the last instance of such a prolonged downturn was in 2001. Historically, after three straight months of losses, Nifty has rebounded in 70 per cent of cases over the next two to three months, with average gains of 3-5 per cent.

MOSL believes that Nifty has found immediate support near 22,800 levels, but the medium-term trend remains negative, with every meaningful bounce facing selling pressure. Resistance levels remain strong at higher zones. If the index manages to sustain above 22,660-22,800, a short-term recovery toward 23,333 and 23,750 is possible.

However, MOSL cautioned that a failure to surpass 23,333 and a breakdown below support levels could lead to another downside of 500-1,000 points. Given the prevailing uncertainty and upcoming key events, MOSL suggests hedging positions using a Bear Put Spread strategy to mitigate risks in case of heightened volatility.

Nifty Outlook: MOSL outlines key technical insights 

• The index has been forming lower highs and lower lows on the weekly scale, steadily drifting lower over the past four months.
• India VIX has spiked 30 per cent this month, indicating that volatility is likely to persist.
• Sustained call writing and a lower Put-Call Ratio suggest a mixed market bias with a limited upside.
• MOSL recommends a Bear Put Spread strategy to hedge against the further downside, targeting 22,000 levels while incurring a cost of 1.10 per cent of the index.

Bank Nifty Outlook: MOSL says index showing signs of relative strength

• The index has formed a double-bottom pattern on the daily scale, with a bullish candle and visible buying in heavyweight stocks.
• Relative outperformance suggests Bank Nifty could move northward in the coming weeks.
• Maximum Put Open Interest (OI) is concentrated at 48,000, while Maximum Call OI is at 51,000, indicating potential range-bound movement.
• MOSL recommends a Bull Call Butterfly Spread strategy to capitalize on a potential range-bound or upward move.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.