Counting Day

The Indian benchmark indices, NIFTY 50 and BSE SENSEX, surged almost 3.75% (highest in almost 6 years) to close at life time highs a day after the exit polls indicated a decisive majority for the NDA government. This is just a teaser to what can happen if the BJP led NDA government actually ends up winning majority as predicted by the exit polls.

Derivative positions suggest that the markets are still edgy about the election results because exit polls have failed to give a true picture of the actual outcome in each of the last 3 elections.

The 2 broad outcomes of the elections would be:

1) BJP led government comes to power

This will lead to a stable government which would focus on capacity creation through infrastructure development. So cement companies, infrastructure companies like IRB Infra and L&T, and commercial banks like Axis Bank, SBI and ICICI Bank would be good stocks to focus on. Mid and Small caps are expected to outperform large caps in this scenario. Open Interest in the 12000–12200 CE range is seen to be increasing which is an indicator of where the market might end up.

NIFTY 50 levels after election result — 12150 to 12200

2) NDA fails to form the government

This would lead to overall uncertainty in the market because of a change in government. The ‘stability’ factor of NDA not coming back to power will lead to a significant correction in the markets. If reaction to exit polls is anything to go buy, retail stocks like Spencer’s Retail and Heritage Foods, and selective pharma stocks like Jubilant Life Sciences and Dr Reddy’s Labs might be the very few stocks trading in the green.

NIFTY 50 levels after election result — 10,500 to 10,700

As India awaits the election results, who are you betting on?