The equity market is bracing for choppy trading in the medium term as state election results are likely to spring surprises for the BJP going by the exit polls.
Investors have turned cautious ahead of the election results for five state elections to be announced on Tuesday which may set the tone for general elections in 2019.
The S&P BSE Sensex fell 1.44 per cent and the NSE Nifty 50 Index dropped 1.68 per cent a week after it rose to a four-week high.
“The exit polls clearly tilt towards the opposition painting a rocky picture for the equity markets. While the actual result will come out on Tuesday but markets take exit polls seriously and will start factoring the results from Monday. If the exit polls results and actual results are to match then the market could correct by 4-5 per cent over the next week,” says B Gopkumar, ED & CEO, Reliance Securities.
According to experts, markets are likely to remain on edge ahead of the state elections result on December 11, especially as the exit polls presented an unclear picture in Madhya Pradesh and Chhattisgarh. This, in conjunction with a surprise break through in OPEC+ production cut, has lent renewed support to Brent which would weigh on the rupee and India bonds.
Additionally, the fate of Brexit parliamentary vote on December 11 would add another layer of uncertainty in FX space globally.
“While the outcome of India’s state elections would decide near term direction of the rupee, we remain watchful of unwinding of global events, including that of the US FOMC Dec policy, which could see Fed further reinstating data dependency-led reaction function ahead. While this could weaken USD at the margin, it may also mean more volatility in 2019 and may not necessarily be a good thing for risk assets, including INR assets. Besides, risk of global slowdown (emanating from or including US) could actually make USD a contracyclical bet in FX space, despite a more dovish Fed in 2019,” said Madhavi Arora, Economist, FX & Rates – Edelweiss Securities Ltd.
According to technical analysts, Nifty forms a bearish Dark Cloud cover on weekly chart holding the fate of bulls at the swing high placed at 10,900. Global markets sell-off that is seen across the major indices has daunted clouds over domestic indices with Nifty giving away almost half of its previous week gains.
“Investors should stay cautious ahead of state elections' outcome, domestic and global macroeconomic data and crude oil price movement next week. The five state election results on Tuesday will be crucial for the general elections in 2019,” said Rahul Sharma, Senior Research Analyst Equity99.
Amid a number of global events placed with FOMC, OPEC and the Arrest of Global CFO of Huawei has unnerved investors. To add more to it, domestic State elections results will be out on Tuesday that may just be the fuel for a short-term volatility, analysts said.
“A dark cloud cover is a bearish reversal pattern which indicates a potential reversal if followed with a confirmation. A Bearish candle preceded by a Bullish candle that closes within and below halfway mark of the previous candle. It simply indicates the upside range is dominated by bears. So it is a tough fight for the bullish trend to close above the level established at 10900. It is accompanied by a 50 % mark of its recent fall from 11800 to 10050,” Mustafa Nadeem, CEO, Epic Research.
Top stock moves of the week
Hindustan Unilever was the top gainer of the week, rising 4 per cent after Unilever Plc agreed to take over GlaxoSmithKline Plc’s nutrition business and then merge their Indian units in a deal worth £3.1 billion or $3.8 billion, according to a report from Bloomberg
Kotak Mahindra Bank rose 3.7 per cent after CNBC-TV18 reported, quoting unidentified people, that Warren Buffett’s Berkshire Hathaway Inc. is in talks to buy a 10 per cent stake in the private-sector lender. However, in response to queries from stock exchanges, Kotak Mahindra Bank said it was unaware of such plans.
On the flipside, Sun Pharma slumped 16.5 per cent after a PTI report suggested that Securities and Exchange Board of India may reopen an insider trading case against the company. Tata Motors declined 5.75 per cent after S&P Global Ratings cut Tata Motors’s long-term rating deeper into junk on Tuesday, the second downgrade for the Indian automaker in five months, citing headwinds for Jaguar Land Rover in some of its key markets. Leverage for the Mumbai-based company may deteriorate over the next 12 to 18 months due to the weaker-than-expected performance of the European subsidiary, S&P said.
All sectoral gauges barring the Nifty IT index ended lower led by the Nifty Pharma Index’s 6.4 per cent fall.
The rupee halted its longest weekly gaining streak since January taking cues from equity markets which came under selling pressure. The local unit fell 1.7 per cent, or 122 paise, to 70.81 against the greenback.