Analysts’ suggest investors to buy put options if the market opens lower on Monday to hedge their long positions while some are advising clients to remain in cash at least for the next 3-4 days
A neck-and-neck contest between ruling BJP and the main opposition party Congress could spell trouble for markets, say experts based on the recent Exit polls which have come out post market hours on Friday.
Weak global cues, as well as state election uncertainty, gripped markets in December. The S&P BSE Sensex which rallied by about 5 percent in November lost 521 points or 1.44 percent in the first week of December. The Nifty50 too fell by 183 points or 1.68 percent for the week ended 7 December.
A strong close on Friday when might not mean that momentum will continue on Monday when the market will resume trading. The S&P BSE Sensex closed 361 points higher at 35,673 while the Nifty50 ended 92 points up to close at 10,693 on Friday.
Most of the exit polls suggest that Congress is likely to make a comeback or at least give a tough fight to the ruling BJP in Chhattisgarh, Rajasthan as well as Madhya Pradesh. From a market point of view, the other two states like Mizoram and Telangana are not material to the markets.
“As of now, it appears that Congress is making a comeback as even poll of polls has put the party in a slightly advantageous position. Besides, Axis My India, which has a better track record of making poll projections in recent times, is forecasting a clear-cut win for Congress in key states like Chhattisgarh, Rajasthan and placing it in slightly advantageous position for Madhya Pradesh suggesting mood swing from BJP to Congress,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“Mizoram and Telangana are not material to the markets but from a strong show from Congress in Telangana can give it much impetus needed for forthcoming general elections. Hence, in the near-term it may not go down well with market participants and market may like to wait for actual result day to react,” he said.
He further added that if the market is sideways and stagnant in the opening trade on Monday without a bigger cut then traders should immediately prefer to hedge their long positions with put options. Strength should be expected only on a close above 10950 levels.
Four out of five exit polls have shown Congress leading in Madhya Pradesh. India Today–Axis poll has given between 102-120 seats to the BJP, and between 104-122 seats to the Congress. Times Now – CNX has given 111 seats to the BJP and 109 seats to the Congress, NewsX-Neta survey has given 106 to the BJP and 112 to the Congress.
Republic – C Voter has given 90-106 to the BJP and 110-126 to the Congress. CSDS has given 126 to the Congress and 94 to the BJP.
Well, one thing which is certain is the fact that Congress is making a comeback and that would possibly spell trouble for market participants which may not have factored in a defeat of BJP in Rajasthan, suggest experts.
“BJP is facing tough competition from Congress in Madhya Pradesh where it was expected to win, but there seems to be a 50-50 chance post today’s exit polls. On the other hand, Congress has come back with all its might and is giving head-on competition to BJP in Chhattisgarh, however, it would be interesting to see which party can form the right alliances and win over the state,” Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.
“Unexpected loss for BJP in states other than Rajasthan hasn’t been factored in by the markets yet, hence, a different outcome will definitely have a short-term downward impact on the Indian bourses. Chhattisgarh and Madhya Pradesh would be critical factors for BJP and markets on the day of results,” he said.
Shrikant Chouhan, Senior VP (technical research), Kotak Securities in an email response told Moneycontrol that market is likely to remain volatile on Monday, and even if it opens higher then benchmark indices are likely to come under pressure and if it opens lower it should bounce back.
What should investors do?
The Nifty50 formed a bearish candle on the weekly charts. The index has decisively broken its 200-days moving average (DMA) placed at 10750. Bulls will only be able to take control once the index decisively closes above this level and head towards 10930-10950 levels.
Analysts’ suggest investors to buy put options if the market opens lower on Monday to hedge their long positions while some are advising clients to remain in cash at least for the next 3-4 days.
Shrikant Chouhan of Kotak Securities said that investors can look for buying put options if BJP seems to be losing. He further added that a loss in Assembly elections would change the sentiment dramatically for the upcoming General Elections for BJP.
AK Prabhakar, Head of Research at IDBI Capital said that we have advised our client to increase cash level and stay out of trading for 3-4days as volatility will be very high.
Technical charts suggest that as long as Nifty holds above 10650 zones it could extend its gains towards 10750-10777 and then towards 10850 zones while on the downside crucial support is seen at 10600 levels, and a break below could take the index towards 10550-10500.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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