Exit polls set to ignite market euphoria: Big gains on the horizon with Gift Nifty showing a 780 point gain

The Gifty Nifty was showing a 780 point rise in morning trade to 23,468.

The exit polls predicting a landslide victory for the BJP are likely to set the markets ablaze with excitement. Markets are buzzing with anticipation, expecting a surge driven by short-covering and euphoria going by how various constituency of traders are positioned in the derivatives market. An initial wave of excitement will be followed by more calculated, strategic investments, experts Moneycontrol spoke to said.

The Gifty Nifty was showing a 780 point rise in morning trade to 23,468. Sushil Kedia, a veteran in the market, predicts an "explosion" in the markets. " Euphoria will hit the markets on Monday. Those who were scared or hedged will rush in to buy. Expect a broad rally across most stocks!" Kedia exclaimed. He anticipates that the actual results on Tuesday could surpass the exit poll predictions, going by past evidence of exit polls underestimating the final verdict. This could further fuel market enthusiasm, Kedia said. "My philosophy is, buy on anticipation, and take the cash when the anticipation works out. So, those who haven't bought yet, those who are underbought, they will participate. We are loaded up to our chin. And I don’t go up to my nose," he quipped.

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Apart from the exit polls, the markets have a lot more to rejoice when it opens for trade on Monday. Friday’s better than expected GDP data, positive cues from the US market and good news around monsoon all are solid reasons to cheer. Last quarter GDP came in at 7.8% compared to consensus estimate of 7%, of course, this was partly technical as the GVA number was lower at 6.3%.

More importantly, last week the market saw traders lighten their position getting into this week seen as “risky” which means they will be jumping in to initiate fresh long positions. On the contrary, foreign investors had increased their net index shorts in a single session to highs seen never-before. On Friday (May 31) again, FIIs added three times more shorts than long, with net shorts now standing at 3.2 lakh contracts, and long-short ratio at 14:86. This indicates a huge number of short positions might be forced to cover, triggering a swift rally in case basket buying takes over on the positive exit poll results.

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Some analysts are questioning the possibility of large purchases given that “clients” or retail traders already pre-positioned on the long side of the game. Retail traders were net long 3.14 lakh contracts with their long-short ratio at 69:31.

"I am not sure if the market will open circuit up – it’s hard to predict. But we will certainly see a 2-4% bump between Monday and Tuesday on a flurry of short-covering,” said Vikas Khemani of Carnelian Capital. Nilesh Shah, MD and CEO of Kotak AMC, encapsulates the sentiment perfectly: "The markets were nervous for the last few days, but this clarity is a huge relief. Traders have lightened positions, but they are likely to go long on the exit poll results, expecting significant reforms," he said.

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