Pre Budget Derivatives Outlook :: HDFC Securities

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This report attempts to study the behavior of derivative indicators during the pre and post budget periods of the last few years and attempts to make a forecast for the market given that the 2016 Budget is due to be announced on 29 Feb 2016.

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During the last few weeks prior to the release of the 2013 Budget on 28 Feb 2013, the Nifty Futures OI gradually rose and peaked on the day prior to the release of the budget. During the same period, the Nifty was in decline mode. Once the Budget was released, the OI crashed and markets continued to drift lower for a few days before making a minor bottom. The OI PCR and basis were declining in the month of Feb on the back of declining markets and rose once the budget was released and markets started to correct upwards.

Conclusion Nifty Futures OI tends to build up prior to the Budget and declines once the event is out of the way. Further build up in OI or decline in OI then depends more on how the Nifty moves and reacts to the various factors affecting it. Given that the derivative indicators like the Basis, OI PCR and IV tend to mirror the movements in the Nifty rather than be impacted by the Budget event, the recent decline in these indicator values point to short positions being built in the market. Though this is contrary to the picture shown by OI buildup, we think that the OI build up will be squared up post Budget and the markets could run into serious selling pressure at higher levels.


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http://hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3016511