Stock market readies for roller-coaster ride

Mumbai: Election results could change the course of action completely for the equity market, brokers and analysts believe. Ahead of the big event, the volatility index, India VIX, jumped to a four-year high to 30.18, indicating high volatility ahead in the equity market on Thursday.

How far the markets could move, on the upper and lower side, depends on the election outcome. Sahaj Agrawal, Head of Research-Derivatives, Kotak Securities, said, "We expect the Nifty to test 12,200-12,500 on the higher side while meaningful support is seen at 11,400 levels. Volatility is expected to remain high in the near term as volatility index Indian VIX trades at multi-year highs."

A Reuters poll of strategists showed that the indices will reach a new record high by year-end, building on the election-driven rally, if the ruling party retains power and continue the current economic policies.

Having gained 8 per cent so far this year, the Sensex is forecast to add another 2.6 per cent by the end of 2019, touching an all time high of 40,000 from Tuesday’s close of 38,969, the poll of nearly 50 strategists taken during May 14-21 showed.

The predicted rise is much smaller than the 15 per cent stock market surge in the first six months after Modi came to power in 2014.

B.V. Rudramurthy, Managing Director at Vachana Investments, said, “Even if the BJP makes it as per exit polls, there will be one correction post the 23rd, which will happen even if NDA gets 300+ seats. This is because global markets are not supporting a rise.”

Shilan Shah, Senior India Economist at Capital Economics, said: “We do expect weakness in global equities throughout the rest of the year as the global economy disappoints…For India, especially with the recent rally, they (stocks) look extremely stretched...It is one of the reasons to think the rally probably can’t continue for much longer.”

Shah has predicted a decline of nearly 12 per cent by end-2019 with one of the most pessimistic calls at 34,250.

Analysts expect a highly volatile session on Thursday. Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel Broking, said, “We must accept the fact, the forthcoming session is likely to see roller coaster rides and the overall trading range would probably be considerably higher than the average range. Any unfavourable outcome would trigger a selloff in the market to retest 11,500 for the Nifty or below levels (depends on the actual numbers).”

“Market had a cheerful reaction to the exit poll’s result over the weekend. Now, it would be important to either see a similar sort of outcome to remain in the upward trajectory… In this scenario, we would see fresh record highs and a path to move towards 12000 or beyond gets unfolded,” Chavan said.

Brokers also remained cautious, doubting exit polls’ accuracy.