Investors have two more days to position themselves ahead of exit polls due on Sunday. If we look at the state election of Madhya Pradesh, Rajasthan and Chattisgarh, most exit polls got it right. The only state where exit polls were wrong were in Chattisgarh, where most pollsters got it wrong.
May give a reasonably good, but, not accurate prediction
If we see the trend of the last few days, data suggests that investors are extremely light ahead of the exit poll numbers. While exit poll data will be due on May 19, the election counting is scheduled for May 23. The problem with this election is that making an accurate prediction is extremely difficult, especially in Uttar Pradesh.
While many believe it would be an NDA government, some are not sure. The problem for the NDA if they fall short of a majority, they would have to depend on regional players like the BJD, YSR Congress and TRS.
Global cues not very supportive
Global cues too are not very supportive. For example, we have the lingering trade war worries between China and the US. If this continues to play out, at some stage we might see further selling from Foreign Portfolio Investors.
The rupee too might thus lose significant ground in the coming days. It would hence we advisable to stick to quality names from the FMCG and IT space.
In fact, we have been seeing some selling pressure in the stocks from this space we well.
FPIs continue selling
For the month of May thus far we have seen some heavy selling pressure from Foreign Portfolio Investors. So far, they have pulled out money aggregating Rs 7,000 crores from the market in the month of May, until May 14. This is after having invested a staggering Rs 31,371 crores in the month of March 2019 and Rs 12,749 crores in the month of April, 2019.
If election results suggest a weak majority for the Narendra Modi led NDA, we could see further selling pressure from Foreign Portfolio Investors.
Markets anticipating a Narendra Modi led government
The Sensex at Rs 37,500 is clearly factoring a Narendra Modi led NDA government at the centre. However, if the markets see the NDA government short of 30 to 40 seats, we might see a swift reaction in the markets.
That outcome is actually very much probable and cannot be ruled out. It is therefore advisable to stay light and in cash.
Brace yourself for volatility
Once the exit poll data is out, we might see a 100 to 200 points volatility easily on May 20 in the Nifty. On election day, the upside maybe capped, given that the markets are already factoring an NDA led government at the centre. Hitting previous peaks on the Nifty of near 11,800 points is a possibility.
However, one must also keep in mind that corporate results have not been that good and economic data has not been too encouraging. Also, mutual fund data suggests that inflows into equities have begun to see a sharp decline. All in all, one should brace for difficult and volatile times going ahead.