Market Strategy for Budget 2024: How should investors position their portfolios ahead of announcements?

With the 2024 Lok Sabha elections concluding and the Modi-led NDA securing a third consecutive term, attention has now turned to the forthcoming Union Budget for the financial year 2024-25.

As the Indian stock market anticipates the upcoming Budget, investors and analysts are evaluating strategies to navigate the potential volatility. With historical data showing mixed returns leading up to the Budget announcement, market experts offer their perspectives on how to manage investments during this period of uncertainty.

From booking profits and re-evaluating portfolios to focusing on long-term growth sectors, market analysts suggest investors to align their strategies with upcoming fiscal policies and capitalise on market movements. By staying informed and proactive, investors can better manage risks and seize opportunities during this crucial period, they added.

Let's take a look at what different market experts recommend:

Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities

Markets generally trade with a negative bias before the Budget. The prime reason is that uncertainty levels rise as we get closer to the Budget. Market participants prefer to book profits and sit on cash and let the event pass by.

Since 2010 there have been 17 Budgets (14 were full and 3 were interim). The average returns 1 week prior to the Budget is -0.45 percent. This time around we have seen a sharp rally in the last 20 days. Nifty has moved up by more than 10 percent in the last 20 trading sessions. This calls for some profit booking in the near term. The returns one week after the Budget is announced are generally positive as the uncertainty is over. Average one-week returns, post Budget presentation, is 1.32 percent for the Nifty. Thus, market participants can start booking profits in stocks that have over-extended rallies and wait for some dips around the Budget to re-enter them.

Nishit Master, Portfolio Manager at Axis Securities

We don't think long-term investors should make any preparatory changes to their portfolios based on their expectations from the Budget. Once the government clearly spells out its priorities, long-term investors can incrementally invest in sectors that can benefit from them.

Ravi Singh- SVP, Retail Research, Religare Broking

Currently, markets are at record-high levels and we do not see major corrections. Long-term investors need not make pre-Budget changes in the portfolio as we are expecting smooth policy continuation in the country and continued focus on capex on Defence & Railways, Infrastructure investment, sustainability models, modernisation of transport networks, and improvement in environmental outcomes. One must not be too bullish as we can see profit-booking opportunities in days to come. Pre-Budget, long-term investors can shuffle their portfolio by ridding from low-performing stocks and traders can gain from short-term trading by buying value stocks on dips. Expect the Sensex and Nifty to inch towards 81,000 and 24,900 marks, respectively, by the end of this year.

Vaibhav Jain, Head of Content and Education, Share.Market

With the current government securing a third term, the interim Budget offers clues on what to expect in the upcoming Budget. Key areas of focus are likely to include infrastructure development and enhanced connectivity, suggesting positive outcomes for the construction, steel, and transportation sectors. Investors might benefit from increasing exposure to companies involved in such industries, as they may stand to gain from continued government spending on infrastructure.

Furthermore, election promises made by the ruling party, including affordable housing, healthcare initiatives, and renewable energy projects, might find space in the Budget, offering additional investment avenues. Overall, positioning portfolios towards infrastructure, defence, and tourism while keeping an eye on Budget announcements can help investors align with potential government priorities and capitalise on upcoming fiscal policies.

Puneet Sharma, CEO and Fund Manager at Whitespace Alpha

In my view, retail investors should take a longer-term view while investing in equity markets especially now that there is an expectation of continuity in government policy and actions. For those interested in trading intra-day through the derivatives market - you should consider stop losses at reasonable distances. For options trading, we expect a higher premium in anticipation of higher volatility. Direction-agnostic strategies such as butterflies, long strangles/straddles, or iron condors can be utilised for benefits during such periods.

For example, one can consider taking a butterfly position on either side of Nifty 50. Such strategies come with a predefined nominal risk-reward payoff of 1:10 going up to 1:20. However, traders should be prepared to close trades as soon as the price of the index is within range of the butterfly.

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.