As we approach towards the major event of the general elections outcome which is due on May 23, 2019, markets took a breather in the April expiry and ended with flat gains of around 0.70 per cent on expiry basis.
Equity markets halted the gains due to rising global oil prices which surged to near six-month high after reports said that Trump administration won’t renew waivers that let countries buy Iranian oil without facing US sanctions, a move that could hit major importers such as China and India. The current set of waivers — issued to India, China and some other countries — expires on May 2, 2019. The Indian rupee also fell sharply in the past series and closed above the 70-mark against the US dollar as surging oil prices stoked fiscal slippage and inflationary concerns.
For the past three weeks, both the Nifty and a gauge tracking its volatility INDIAVIX rose in tandem, a rare occurrence that indicates signs of hedging. On the other hand, the major outperformer of the last series i.e. Bank Nifty ended with cuts of more than 2.80 per cent led by profit booking in the YESBANK, INDUSINDBK and AXISBANK followed by select PSU banking stocks. NIFTYAUTO emerged as the star performer gaining around 4 per cent in the last series after witnessing deep cuts in past few months.
In the fresh series, equity market sentiments would be largely guided by the ongoing fourth quarter results of HEROMOTOCO, YESBANK, KOTAKBANK, HINDUNILVR, ICICIBANK and HDFC. Bourses may also witness bouts of volatility till clarity emerges on the political front post general elections outcome.
Events to watch out in May Series
The last four phases of polling which consists of 241 seats is due in the May series which may provide general idea to market participants of the possible outcome from the polls. On the economic front, industrial output and the inflation data will be out in the second week of May which may hint the markets on the stance of the RBI in the next monetary policy.
Global markets coupled with the movement of crude oil prices and currency will impact the Indian equities for the medium term period. The ongoing trade talks between US and China will also remain a key area of discussion for the coming few weeks.
The markets will also await the exit polls outcome on May 19, 2019 post the conclusion of the last phase of polls. Market participants on an overall basis are expecting the ongoing NDA government to return to power for the next five years and markets have also rallied on the aforesaid expectations towards 11800 levels. Any type of shocker from the Exit polls may create first round of panic in the markets. And last but not the least, the D-day May 23, 2019 will be providing the final direction to the Indian equities. A favorable outcome may create room for further up move or may even trigger profit booking while unfavourable scenario may create panic selling for sure in the markets. Short to medium term traders should hedge their positions and portfolios from current levels and have a close watch on the markets for the upcoming series.
After a robust move in March series, we had seen a subdued April series which closed on a flat note. Upward momentum has slowed and Nifty index moved in a tight range of 307 points and managed to close with a gain of 71.80 points at 11641.80. Indian volatility barometer India VIX has doubled from the levels of sub 13 in the month of March to the current levels of 25 – 26, indicating participants are expecting more uncertain moves ahead of election result. Bucking the expectations, foreign players pumped around Rs 12,635 crore into the cash market, while DIIs have pulled out around Rs 5,900 crore as on April 26, 2019.
Higher VIX indicates markets may swing swiftly on either side. VIX generally rises due to uncertainty around any event. Recent surge in crude oil prices and foreign players booking profits have been a dampener on markets. For most part of the May series, we expect Nifty to trade in the range of 11350 / 11400 to 11850 / 11900 levels.
Sectors which are expected to outperform in the May series are Nifty IT and Nifty Private Banks, Nifty CPSE, Nifty Auto, Nifty Metals, Nifty Infra, Nifty Media and Nifty Pharma are likely to underperform Nifty 50. Nifty Bank, Nifty Energy, Nifty Financials, Nifty FMCG and Nifty PSU Banks are expected to perform in line with the market.
All major indices moved into trading range for April series and it was a very good series for traders who played for short volatility. India VIX index gained around 40 per cent on Expiry to Expiry basis, indicating a rise of fear or uncertainty among the market participants. Foreign players remained positive for major part of April series.
Nifty IT index powered by quarterly results of TCS stood as the strong sectoral gainer for April series, while Bank Nifty lost around 3 per cent during the same period.
While the reasons to buy or sell equities cannot be made on election results alone, in the short term, it will be the main driver.
This earnings season may be subdued due to the impact of a demand slowdown as well as lagged impact of commodity prices. However, we believe that if a stable, reform oriented government were to assume power, companies who are in a wait-and-watch mode may go in for capex, boosting prospects for recovery in corporate earnings.
We expect markets to remain volatile in the May series and may also witness wild intraday swings tracking developments from the domestic, global and economic data front. At current juncture, the ongoing sentiment seems to be bullish amid no major negative news flows. Short term traders may hold on to the long positions on the index for the upside targets of 11900-12000 for the near term with 11500-11550 acting as a major support area.
The author is head of Technical & Derivative Research, Karvy Stock Broking Limited