The frenzy around elections will take some time to die down and stabilise that makes it difficult to predict the market’s behaviour for the next 100 days, suggest experts
Sensex and Nifty hit record high on May 23 climbing 40,000 and 12,000 levels, respectively. However, both indices witnessed profit booking and could not sustain at those levels after the news of Modi's victory in general election sunk in.
In the subsequent sessions, firepower at lower levels has pushed the index past crucial resistance levels, which suggests that bulls are here to stay.
This suggestion is supported by historical trend as AceEquity data reveals that in the last 20 years, bulls remained in control in three out of four instances in the first 100 days of the formation of a new government.
After Atal Bihari Vajpayee formed won the 1999 general election, S&P BSE Sensex rallied about 40 percent in the three months. In 2009 and 2014, the index climbed 5 percent and 8 percent, respectively, in the first three months of government formation.
The three-month period after 2004 was the only instance when Sensex gave negative returns, falling over 5 percent.
As Modi gears up for his second stint at the Prime Minister's Office, experts say the chance of benchmark indices hitting fresh record highs is there but at the same time upside remains fairly limited, and a round of profit booking could come in as valuations remain fairly stretched.
“While some gains cannot be ruled out in the near term, we expect this excitement of NDA victory to be short-lived and focus should shift back to fundamentals over medium to long term. Notably, at current levels, the Indian markets are trading near peak valuations and at a significant premium to other emerging markets,” Jayant Manglik, President - Retail Distribution, Religare Broking Ltd told Moneycontrol.
“This warrants some caution, a correction cannot be ruled out in the event of a further downgrade in corporate earnings, deterioration in macros and global uncertainty. Hence, unlike before, wherein the Sensex gave positive returns in three out of four election verdicts, the situation could be different this time around,” he said.
Analysts are not promising a one-way move in the near term; hence, investors should turn cautious in the near term while long-term investors can use dips to build their portfolio.
The frenzy around elections will take some time to die down and stabilise that makes it difficult to predict the market’s behaviour for the next 100 days, suggest experts.
There can be minor bumps and bouts of profit booking due to elevated levels and focus will shift to events like the Monetary Policy Meet and Budget that can be game changers and can decide the direction of the markets ahead, they say.
“I would prefer a holistic view rather than focus on the performance of the next few weeks. In fact, historical evidence suggests, that irrespective of the trend, Nifty tends to face challenging environment during every election year,” Pritesh Mehta, Senior Vice President - Research, YES Securities (India) Limited told Moneycontrol.
“We probed Nifty’s historical data and observed that it tends to drop by more than 5 percent at least four times during election year,” he said.
Mehta further added that it is unlikely to be a one-way move on the upside, speed bumps along the way is going to make the ride bumpy for market participants.Note: The story has been updated with a revised version of the table. The header for the earlier version of the table read: 'Sensex 3-month return after Election' instead of 'Sensex 3-month return after Lok Sabha Election'. The Great Diwali Discount!
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