Sensex and Nifty 50 dropped 3 percent ahead of the June 4 election results, as early trends show that the NDA coalition's majority may not be as emphatic as exit polls had forecast. Shares of state-owned companies and key Adani group stocks were among the biggest losers in early trade. These stocks had gained the most on Monday.
"The market discounted the election outcome on June 3 itself. It is expecting the BJP-led NDA to win 350-375 seats. If this number becomes a reality, the market will likely sustain the gains," said Kranthi Bathini, Director of Equity Strategy at WealthMills Securities.
At 9.42 am, the Sensex was down 2,242 points or 2.9 percent at 74,226 and the Nifty 50 was down 697 points or 3 percent at 22,566. About 420 shares advanced, 2,610 shares declined, and 90 shares remained unchanged.
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Excluding Nifty Pharma, Nifty Healthcare, and Nifty FMCG, the remaining nine sectoral indices were in the red. Financial services and oil and gas stocks, which led the Nifty 50 higher on June 3, dragged the index down today. Meanwhile, FMCG and pharmaceutical stocks lend support to Nifty.
Bathini said that the market dislikes uncertainty, and with the election uncertainty now reduced, FPIs and sidelined investors are becoming selectively active. He said that the market will now focus on how the BJP's plans translate into action.
"The counting of votes and final election results could lead to some level of volatility," said Deepak Jasani, Head of Retail Research at HDFC Securities. India VIX rose over 20 percent to 25.2 as of 9.45 am.
In the broader market, both BSE Midcap and Smallcap fell over 3 percent.
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"The exit polls indicated that the NDA might secure over 350 seats. That's what we need to monitor today," said Ambareesh Baliga, an independent market analyst.
Analysts believe several factors are aligning in favor of the Indian market. In the previous session, Nifty logged its best performance since February 2021, driven by investor optimism over exit polls and better-than-expected Q4 GDP. Analysts also attributed the rally to a reduced fiscal deficit, early monsoon advancement, and increased GST collections.
However, inflation concerns, geopolitical issues, and the BJP's potential failure to deliver on its promises could pressure the market.
"In the immediate term, 23,500-23,800 will serve as resistance points," said Neeraj Sharma, AVP Technical and Derivatives Research at Asit C. Mehta Investment Intermediates. "On the downside, the recent breakout peak of 23,110 will act as first key support for the index," he said.
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