Stock Market Analysis: Profit-Booking on Election Results Day?

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Disclaimer: The following analysis is for informational purposes only and should not be construed as financial advice. Investment decisions should be made based on individual risk tolerance and financial goals. Always consult with a professional financial advisor before making investment decisions.


Exit polls have signaled a significant victory for the BJP-led NDA, raising questions about whether this will lead to a hat trick for Prime Minister Modi or if a twist awaits India. The sharp 20% drop in the Volatility Index (VIX) suggests the market is pricing in a win for Modi.

Near-Term Volatility but Long-Term Stability

Siddhartha Khemka, Head of Retail Research at Motilal Oswal Financial Services, predicts some volatility on the day of the election results. He notes that if the BJP secures more than 330 seats, there might be an initial uptick followed by profit-booking. The next market triggers would be government formation and the budget, with growth momentum being a key factor for investment in India.

The current Open Interest buildup in the 24,000 Call suggests a neck-and-neck tussle in the markets. Khemka explains that "Nifty valuations are marginally above the long-term average. With earnings growth continuing, valuations could maintain current levels. Nifty PE is around 20 times one-year forward, slightly above the 10-year average of 19-19.5, but not at a significant premium. We expect 15-16% returns, taking Nifty to about 24,500."

FIIs vs. DIIs: Tracking Fund Flows

Foreign Institutional Investors (FIIs) have been selling in the Indian markets for the past month, with the largest outflows in Asia, amounting to $2.89 billion. This is seen as profit-booking and conserving cash for realigning portfolios once the new government is in place. Conversely, Domestic Institutional Investors (DIIs) are providing significant market support. Deven Choksey, Managing Director of DRChoksey FinServ, asserts that domestic money flow remains steady due to strong economic fundamentals and continued government spending.



Nifty Run-Up Over 6 Months?

Kishor Ostwal, CMD of CNI Research, compares the current market situation to 2014, when Nifty rose from 6,000 to 9,000 in 3-5 months. He anticipates a similar run-up, with minimal corrections until October or November, predicting a Nifty target of 25,800 in the next 3-6 months.

What Should Be Your Stock Market Strategy Now?

Ambareesh Baliga, an independent market analyst, suggests maintaining 20-25% of your portfolio in cash. Given the relatively high market valuations, he advises being prepared for different scenarios: if the market shoots up to 24,500, 75% of your portfolio performs well; if it corrects, the 25% cash reserve gains value. Baliga emphasizes confidence in the long-term performance of the Indian economy, recommending holding some cash in the current scenario.

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