Will Bank Nifty see selling pressure intensify as election results near, just like in the past?

At 15:30 hrs IST, the Sensex was up 676.69 points or 0.93 percent at 73,663.72, and the Nifty was up 203.30 points or 0.92 percent at 22,403.80. About 2033 shares advanced, 1658 shares declined, and 114 shares unchanged

Bank Nifty has been rangebound since the beginning of the current financial year 2024-25, suffering limited drawdowns amid the election chaos -- it is now down about 4 percent from the all-time high hit at the end of April. However, if the historical technical trends are anything to go by, the banking index may soon see selling pressure intensify in two weeks leading up to the general election results.

On May 16, Bank Nifty rose about 0.6 percent to 47,970 towards the end of a choppy trading session, swinging into green from the day’s losses. Over the past five trading sessions, the banking index has remained range-bound to negative.

Dichotomy of pre-election result trends:

Derivatives trader Shijumon Anthony said, "Currently, we have 2 weeks and a few days until the result date. In 2014, the market exhibited sideways to bearish movement, and in 2019, it was in a clear downtrend during this phase. It is highly probable that we'll see a similar trend this time, considering the mounting tension."

Shijumon Anthony's insights into pre-election movement of Bank Nifty index:

2014 Elections:

The Bank Nifty index was in consolidation mode for over two months before the election. It traded in a tight range of 500 points for over two weeks before a breakout. As clarity emerged towards the last phase of the election, the market gained momentum, and Bank Nifty surged from 13,000 to 15,700 in just six trading sessions, marking a over 20 percent rally.

2019 Elections:

Similarly, in 2019, the Bank Nifty index faced selling pressure during the two months preceding the election results, dropping from 30,600 to 28,555. It remained within a stiff trading range two weeks prior to the results day. However, it rallied from 28,555 to 31,700 within six days after the results, marking an increase of nearly 11 percent or 3,100 points.

2024 Elections:

"This time, the technical pattern is completely different," said Anthony. The Bank Nifty is at the lower end of an uptrending channel forming since January 2024. “However, based on the prior election period study, selling pressure is expected for the next two weeks, and I'll keep that in mind while trading,” he said. The low of 46,983 is an important level to watch, below which, he says, he would sell aggressively.

Watch volatility

On the other hand, volatility too has emerged as a concern of late, with the India Vix doubling to over 20, from under 10 on April 23.

Anthony expects it to climb to as much as 25 in the coming days, albeit it may not necessarily spell bearish sentiment.

Also read: Option strategy of the day |Bearish breakdown in Tata motors; use bear spread to gain from falling stock

"We need to closely watch India Vix too. In the 2014 election week, it ranged from 30 to 39, and in 2019, it was between 25 to 30. With weekly expiries in all major indices, I'm not expecting it to exceed 30+, but we may stay within the 20-25 range in the coming days until the election. A high VIX during this time does not necessarily indicate bearishness; it is simply factoring in the expected volatility during the result period," Shijumon Anthony added.

He notes that the exit poll and results draw closes, he will keenly observe the market action and follow the trend, considering that the trend can be more significant than usual.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.