Now is the time to get your event-driven trading strategies ready for India’s Budget Day on 1 February
By Anantya Bhatnagar, Quantitative Analyst, BMLL
First published in TabbFORUM, 23 January, 2025
India’s Budget Day may significantly impact trading volatility and volumes, to the point that India’s stock exchanges are keeping markets open on Saturday 1 February, to allow investors to trade. Anantya Bhatnagar, Quantitative Analyst, BMLL, takes a granular Level 3 data look at the dramatic impact of India’s 2024 budget on market behaviour.
Macroeconomic news moves markets, driving price swings and fluctuations in trading volumes. Efficiently trading during these times can be difficult, but is essential, whether that’s for best execution or efficient risk management. In this article, we focus on two recent examples of major macroeconomic events - the Indian government releasing the Union Budget in July 2024 and the US Federal Reserve slashing interest rates in September 2024 for the first time in 4 years.
We compare and contrast the US and Indian events as two separate examples of macroeconomic developments that had major ramifications for equity markets. Using Level 3 data, we analyse daily and intraday activity for the immediate period around both events. We uncover how differently markets react based on the nature of the event, participant make-up and market microstructure.
And with India’s Budget Day just around the corner, it’s time to think about the potential impact of this special trading day on any event-driven strategies.
The impact on trading volumes
Whilst both the changes to US rates and the announcement of Indian budgets were significant macro events, the impact on daily trading volumes was very different.
Figures 1a) and 1b) below display the daily notional value traded for the ‘Magnificent 7’ stocks in the US (as a proxy for US large cap activity) and the Nifty 50 stocks in India respectively. We note that -
The US Magnificent 7 alone trades around 20-25x the daily notional of the entire Nifty 50.
The total volume in the Magnificent 7 did not significantly differ when rates changed (18th September) from the daily average for September. This was possibly because the market had priced in a cut for quite some time; the question was when would the Fed reduce rates, rather than if. The subsequent spike on 20th September is related to a different event - the quarterly S&P 500 index rebalance.
The Nifty 50 traded notional, on the other hand, was 32% higher on Budget Day (23rd July) than the average daily notional in July.


There are significant differences between the intraday volume profiles
We now take a look at the intraday volume profiles in each of the two cases, which reveal some fundamental differences in trading activity and market structure. Figures 2a) and 2b) show the US profiles on a ‘regular’ trading day vs the event day, whereas Figures 3a) and 3b) show the corresponding profiles for the Nifty 50 stocks.
Together from Figures 2 and 3, we note some key differences -
While the relative increase in intraday volume on the days of the respective events was similar in both countries (peaking at about 5x the average volume in the respective time frames, at 2-2:05 pm in US and 12:30-12:35 pm in India), the clearly visible difference is that, in India, the effects of the Budget announcement caused midday to become the most traded time in the day, even surpassing the volume at the open (typically the main liquidity event of the day).
The closing auction in the US is the time that displays the largest volume, accounting for about 10-15% of the day’s notional. By contrast, India does not include a closing auction (the close price is determined by the VWAP of the last half hour of continuous trading) so it doesn’t face the same kind of condensed reference price pressures for mark-to-market activity.




We will now focus on the impact of the Indian Budget announcement on the Nifty 50 market activity in more detail.
Intraday trade imbalance
Whilst volumes in the Indian market were 32% higher on the day, the Nifty 50 index dropped by 2% intraday - implying more selling than buying pressure. Figures 4a) and 4b) show the intraday volume profile by aggressor side.
Trades executed at the Bid demonstrate sellers meeting the buyers’ prices (marked below as aggressive ‘ASK’), whilst conversely trades at the Ask demonstrate buyers meeting the sellers’ prices (marked as aggressive ‘BID’).
There is a tendency for more volumes to be traded at the Ask even on regular days during this period, however we can clearly see that it was aggressive selling at the Best Bid that applied the downward pressure on stock prices.


Proprietary traders and algorithmic strategies significantly drive market activity
On the passive side of the trade, we find granular information from the full-depth NSE limit order book that gives us details of the type of market participants involved in the heightened market activity.
Figures 5 and 6 together show us that the majority of the increase in intraday passive activity came from proprietary traders (12x increase) placing orders via algorithms without SORs (7x increase).
Understanding the profile of the participants behind this increase allows trading desks to correspondingly adjust their own trading patterns, so that they can achieve favourable risk-return outcomes.
Proprietary traders are defined by the NSE as members trading on exchange on their own behalf (as opposed to on behalf of a client). CP (Custodian Participant) clients are clearing but not trading members, and settle trades (executed by trading members) on behalf of their clients.




So what was the impact on quotes?
Did the increase in trading activity narrow the spread, or did the spread widen? Figures 7a) and 7b) reveal what took place.
Spreads almost doubled around midday. It became more expensive to cross the spread and trade against quotes at the far touch.
It is worth noting that the Nifty 50 index did subsequently return to its previous level in the next 3 trading days and rallied to a 52-week high by September 2024.


Turning historical data into pre-trade insights
Understanding the impact of macroeconomic events on intraday trading activity is critical for all market participants, whether that is finding alpha, achieving best execution or managing risk. By leveraging high quality level 3 data, participants can understand how market structure and order behaviour quickly changes after news events.
Importantly, we see that markets do not always react in the same way. The nature of the event, market microstructure (such as the influence of the closing auction) and participant make-up can all impact how the market reacts. Historical level 3 data, with fields such as participant-type flags and aggressor side, can help build a more complete picture of trading after an event.
This historical data can be turned into a ‘memory bank’ of these similar events, turning high quality historical data into the best possible pre-trade intelligence. And looking to 2025, with more potential shocks, changes and events to come, having intelligence about how the market will react will be more important than ever.