Most experts feel that market discounted the worst and the BJP should take these results as a wake-up call just ahead of General Elections in 2019
The well-known saying that market discounts everything in advance might have just happened on December 10 when we witnessed a 700-point drop in Sensex and about 200 points plunge in Nifty50, discounting a possible loss of BJP in Chhattisgarh, Madhya Pradesh, and Rajasthan.
However, what it didn’t discount was the resignation of the Reserve Bank of India’s (RBI) governor which eventually led to a 500-point drop in Sensex in morning trade. But, the late recovery suggests the market has taken that news in its stride as well.
Markets staged a smart recovery in afternoon trade when latest trends suggested that BJP and Congress were neck-to-neck in Madhya Pradesh. Whereas in Chhattisgarh and Rajasthan, Congress still holds the pole position.
Most experts feel market discounted the worst and the BJP should take these results as a wake-up call just ahead of general elections in 2019. For investors, the big learning is that they should use the dip to buy into quality stocks but in a staggered manner.
“I am stunned by the results of Chhattisgarh and surprised by MP and Rajasthan results. The market reaction from last week, when the Sensex fell nearly 1,300 points, seems to have discounted lot more,” Raamdeo Agrawal, Chairman at Motilal Oswal Asset Management said in an interview with CNBC-TV18.
The latest tally suggests Congress and BJP are in a close contest in Madhya Pradesh, but in Chhattisgarh and Rajasthan, Congress is likely to form the government. In the run-up to the general elections, results of state elections will act as an eye-opener for the BJP.
“It is a wake-up call for the complacent government. In next few months, populist measures are expected which will be thought as anti-stock market measures which will keep markets on its toes,” Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.
“Investors should look to buy on decline in a staggered manner till general elections to build a portfolio of quality stocks which will ride the ensuing bull market post the formation of new government. Whichever government comes to power, bull market will unfold itself because of structural sweet spot India is into,” he said.
We have collated reactions from analysts as to how state election results will impact markets and how should investors structure their portfolio:
Analyst: Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in
The market appears to have factored in the electoral outcome by accepting the defeat to the BJP with a fall on December 10 as market has not reacted freshly to the early leads by Congress in all three key states. MP may be heading for a hung assembly whereas in other two states Congress can comfortably form the government.
Technically speaking, as we have been pointing out that the rally registered in November is a counter-trend move and hence once that move culminates, market needs to resume its downswing.
At this juncture, we are seeing that phenomenon unfolding in the markets. Hence, till general election, market shall continue to trade sideways with a negative bias.
In case 10,000 gets decisively breached then, based on our long-term trend studies, strong support is placed in the zone of 9,969–9,833. Contrary to this some upward momentum shall be expected only on a close above 10,750.
Analyst: Pushkaraj Sham Kanitkar, AVP - Technical Research at GEPL Capital
From a purely political perspective, the worst scenario comes true for the ruling party at the center. However, it could also be an alarm bell for the general elections and that may bring in some change in strategy to consolidate on the holdings of the ruling party. How the future course of action pans out is anybody’s guess at this juncture.
In the very short term, the market has largely discounted the outcome. The fall of INDIA VIX by around 11 percent is a clear indication of the same. The market like we mentioned earlier discounts everything.
We feel this is the start of a medium-term sideways drift. The broader range could be defined by 9,700-11,000 on a broader scale and hence it would be a trader’s market rather than an investor’s market.
Analyst: VK Sharma, Head - PCG & Capital markets strategy, HDFC Securities
Assuming the current trends hold and the results come on the same lines, they would be on the expected lines. The markets had discounted a loss for BJP in all three states.
What is more important is the fight put up in Rajasthan and Madhya Pradesh by the BJP, which is better than expected. The markets will recover from here. The worst has been discounted.
Analyst: Pritam Deuskar, Fund Manager, Bonanza PortfolioAs far as Chhattisgarh is concerned, it had been a surprise. Rajasthan was very much expected that Congress will win, MP was 50-50 scenario. This now indeed makes general elections more speculative to happen in May 2019. Mostly BJP will have to ally with other parties to form governmrntt in center.
Assembly Elections 2018: Read the latest news, views and analysis here