Gujarat elections: Expect market volatility if results differ from expectation

Updated: Dec 18, 2017, 17:43 IST | Arun Kejriwal

This effectively means that actual results on Monday around these expectations are already built into the price. There would be sharp movement in either direction if the actual results differ from these expectations

The week gone by was volatile on expected lines. It ended on a positive note, post the exit polls for the two state assemblies of Gujarat and Himachal Pradesh, which were announced on Thursday evening. According to the polls, BJP is expected to retain Gujarat and win Himachal Pradesh, which was earlier ruled by Congress. The margin of victory in Gujarat is a matter of debate and conjecture but the market has based its present expectation at around 110 seats in a house of 182 seats. The outgoing government had 115 seats held by the BJP. This effectively means that actual results on Monday around these expectations are already built into the price. There would be sharp movement in either direction if the actual results differ from these expectations.

Union Finance Minister Arun Jaitley at a New Delhi meet. Pic/PTI
Union Finance Minister Arun Jaitley at a New Delhi meet. Pic/PTI

Point made
The BSESENSEX gained 212.67 points or 0.64 per cent to close at 33,462.97 points. NIFTY gained 67.60 points or 0.65 per cent to close at 10,333.25 points. The broader markets saw the BSE100, BSE200 and BSE500 gain 0.48 per cent, 0.42 per cent and 0.35 per cent respectively. BSEMIDCAP lost 0.41 per cent while BSESMALLCAP was down 0.23 per cent. The top sectoral gainer was BSEOIL&GAS up 1.09 per cent followed by BSEAUTO 0.88 per cent and BSECONDUR 0.82 per cent. The top sectoral loser was BSEREALTY down 1.88 per cent followed by BSEPOWER 1.21 per cent and BSECAPGOOD 0.82 per cent. The top individual stock to gain was Dr Reddy's up 7.88 per cent followed by M&M up 6.34 per cent and Lupin 4.65 per cent. The top loser was Infratel down 5.30 per cent followed by Cipla 4.81 per cent and ICICI Bank 2.34 per cent.

A re-polling centre at Nava Naroda on the outskirts of Ahmedabad. Pic/AFP
A re-polling centre at Nava Naroda on the outskirts of Ahmedabad. Pic/AFP

Bitcoin begins
The Indian rupee recorded sharp gains and was up 41 paisa or 0.64 per cent at Rs 64.04. Dow Jones continued its strong showing and gained 322.58 points or 1.31 per cent to close at 24,651.74 points. Bitcoin has begun, trading on the Chicago futures exchange and has notched fresh highs. It was last trading at just under $ 19,400 and has gained over 14 per cent in the last week.

Raised rates
The US Fed has raised interest rates for the third time in the current calendar year to between 1.25-1.50 per cent. They have also said that in the next calendar year they would raise rates on three occasions. This would put a strain on the easy liquidity and cheap money that was available for investment. People would now look for performing markets and pick and choose the better ones for deploying resources.

Seeing returns
The current calendar year has seen returns of 25 per cent, and, has been a fruitful year for investors. The buzz on the street is that, if in the next calendar year markets return even half of this number it would be a good return. The idea is that investors must learn to lower their expectation from the coming year. The biggest concern is of course valuations which are extremely rich and need to correct sooner than later. Another key learning from my interaction with some industry opinion makers, is that, do not invest in beaten down sectors, instead invest in stocks from that sector looking at opportunities and capabilities of each company. While there would be plenty of opportunities to invest one would have to look at companies and do some homework in selecting the companies.

Lifetime highs
The lifetime highs made on the BSESENSEX of 33,865.95 points and NIFTY of 10,490.45 points are just one day's movement away. They may happen post the election results on Monday or may not happen till the early part of the next quarter of the calendar year 2018. Monday is a great chance for the same to happen. One must remember that the results have been partially discounted. Counted in the BJP winning HP with over 45 seats is factored in. Similarly, BJP winning Gujarat and getting between 105-115 seats is also discounted. For there to be a sharp move and go past the previous high the margin of victory has to be bigger. On the flip side, if the numbers reduce than the above when actual results are announced. There could be a sell-off in the market and technical analysts would term it as a failure to test the previous high.

Use rally
In either case, the setting is brilliant and one is sure to have its share of volatility on Monday. In any case, markets are also set post this election result event to go in for medium term correction triggered by either profit taking or disappointment. Use the ensuing rally to book profits and sit on cash which would be handy post the profit taking.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd.

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only.


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