With exit polls results showing the Bharatiya Janata Party (BJP) had an edge over the Congress in the five state Assembly elections held in November and December, it is expected markets would open firm on Thursday. However, gains could be capped, as the markets had already factored in a BJP victory in most of these states.
“Though a big BJP win has already been factored in by the market, there could be a positive reaction in the market, as the exit polls show some uniformity in the results,” said Sudhakar Ramasubramanian, managing director, Aditya Birla Money.
On Wednesday, markets were nervous, as Delhi went to polls. Shares remained volatile through the day, swinging between gains and losses, as participants took positions in anticipation of a BJP win in at least two of the five states. “Even if the BJP wins in two of the five states, markets will rejoice. But till the final results are announced on Sunday, investors are being cautious and taking some profits off the table,” said Sandeep Singal, co-head of institutional equity, Emkay Global Financial Services.
On Wednesday, the broad market indices closed with a loss of 0.7 per cent. While the BSE Sensex closed at 20,708, the National Stock Exchange Nifty closed at 6,160. India VIX, the volatility index, fell four per cent, as options traders cut their positions ahead of the exit polls.
The week started on a good note, with the markets rising on Monday on better-than-expected data on gross domestic product released last Friday, as well as improvement in the data for manufacturing in November. However, markets started paring gains, as investor expectations of a BJP win started to build into markets.
Analysts say traders had been building long positions on expectations the BJP would sail through in the results for the five state Assembly elections. But the recent rally in the market prompted some investors to book profits and sit on the sidelines till the results are announced on December 8.
On Wednesday, foreign institutional investors (FIIs) were net buyers by Rs 52 crore (Rs 520 million), while domestic institutional investors (DIIs) were net sellers by Rs 18 crore (Rs 180 million). Through the week, FIIs were net buyers by Rs 1,368 crore (Rs 13.68 billion), while DIIs were net sellers by Rs 1,307 crore (Rs 13.07 billion).
Some believe the fall in the market was due to the Nifty's inability to sustain above 6,200-levels. “Earlier, markets have not been able to breach the 6,200-level successfully. There is nervousness in the market on account of that, too. But markets could trade higher next week after the actual delivery of results on Sunday,” said Singal.
According to derivatives analysts, short positions had been built into the market, as shown by the fall in option premium. “Traders are getting cautious and are betting on the downside. The positions being created suggest markets are short, no matter what the exit polls say,” said Shubham Agarwal, vice-president and senior analyst (technical equities), Motilal Oswal Financial Services.
Analysts estimate the Nifty’s movement to be in the range of 5,950 and 6,250.