Views of Viswajit Srinivasan, Director - Business Development, Wholesale Lending, Capri Global Capital Ltd. in ET Online

May 15, 2014
Don't expect a 'spectacular rally' on Friday the 16th, say analysts

NEW DELHI: It may not be official yet, but it looks like the markets are discounting a scenario where the NDA forms a government with Narendra Modi as a Prime Minister on Friday, May 16. 

We have already witnessed a massive spectacular rally of over 1,500 points on the S&P BSE Sensex in a matter of just three trading sessions starting Friday. All the exit polls have unanimously given the BJP-led NDA a seat tally which is near majority of 272 seats, which will enable them to form government and Modi to become India's 14th PM. 

However, the real picture will be out on May 16 only. The rally is primarily driven on the hopes of exit polls and these polls have been misleading in the past two elections, say analysts.

Even if the NDA does come to power but with seats lower than market expectations, we may see some bit of profit booking, say experts. The runaway rally seen so far on the benchmark indices will only extend marginally even if a stable business-friendly government comes to power on May 16, because most of it is already factored in.

"Exit polls have not been completely reliable, as has been evidenced in the past. However, the overwhelming view is that there would be an NDA-led government at the Centre and this has already been factored in by the market at the current levels," said Viswajit Srinivasan, Director - Business Development, Wholesale Lending, Capri Global Capital Ltd.

"In the event of a significant difference between the exit poll results and an unstable government at the Centre, the market would see a big correction. The volatility would definitely be high and retail investors would be best placed to not enter till there is clarity on which party is likely to lead the next government formation," he added. 

The recent run-up seen in benchmark indices is evident from the fact that the markets are pricing in some probability of the BJP-led NDA government at the Centre. If the exit poll numbers are in favour of NDA, there is a possibility of a sharp up-move while a vice-versa situation could be disastrous for the markets, say analysts.

"It seems the NDA may form the next government at the Centre. The Nifty around 7100 levels suggests a lot of good news is already factored in. Having said that if there is a fractured mandate, with the NDA bagging around 220 seats, then the markets will be in shock," said Raamdeo Agrawal, joint managing director of Motilal Oswal.

"I think that NDA will get 225-230 seats as no one's prediction has been below that. So let's not talk about something which is completely surprising, like the UPA getting 250-270 seats," he added.

The last three days saw the Nifty rallying over 100 points and the index is now trading comfortable over 7000 levels. Experts feel that traders should book some bit of profits as the rally might not be that strong on Friday.

"I have been advising my clients now for the last 8 to 10 days, saying that at every rise it is time to book profits to a certain extent. Investors should look at liquidating 30% to 35% of their portfolio, especially if they have bought in the last five or six months," said Ambareesh Baliga, Managing Partner-Global Wealth Management, Edelweiss Financial Services.

"It is always prudent to book out to a certain extent, because the best of the news is already there in the price and assuming that they have a complete majority as per the exit polls, we can possibly have one more bump up may be of 150-200 points," he added.

But Baliga is of the view that the pop may not really be worth playing, because in case the final result is different and negative compared to the exit polls, the downside could be huge. So it is better to take that bird "It is always prudent to book out to a certain extent, because the best of the news is already there in the price and assuming that they have a complete majority as per the exit polls, we can possibly have one more bump up may be of 150-200 points," he added.

But Baliga is of the view that the pop may not really be worth playing, because in case the final result is different and negative compared to the exit polls, the downside could be huge. So it is better to take that bird which is in your hand than hoping for two in the bush, he said.