Jatin Gedia – Technical Research Analyst at Sharekhan by BNP Paribas

“Our primary outlook is that Nifty shall now retrace the rise it has witnessed from 18840 to 23340 between the period October, 2023 to May, 2024. The crucial support levels to keep handy are 21100 which is the 200 day moving average and 50% Fibonacci retracement level of the entire upmove. A close below this support zone can lead to further decline towards 20560 which is the 61.82% Fibonacci retracement level. On the upside, 22310 – 22550 shall act as an immediate hurdle from short term perspective. The range of consolidation is likely to be 21000 – 22500.”

Bank Nifty

Speaking on the Bank Nifty Gedia added that the “Index has also broken down from the rising channel indicating change in trend. We expect the Bank Nifty to correct towards 46150 – 44000 which are the 200 day moving average and the 38.2% Fibonacci retracement level of the rise from 32300 – 51100. On the upside, 48600 – 49200 shall act as an immediate hurdle.”

Vinod Nair, Head of Research, Geojit Financial Services explained that the unexpected outcome of the general election sparked a “wave of fear selling in the domestic market, reversing the recent substantial rally. Despite this, the market maintains its expectation of stability within the coalition, led by BJP as the major election winner, thereby mitigating substantial downside in the medium-term. This is likely to lead to a major shift in political policy with a focus on social economics, which will have a positive effect on the rural economy. Alongside, the sectors that have topped in the past five years, including power, capital goods, real estate, and industrials, are advised to exercise caution in the near term. Nevertheless, the long-term growth prospects for these sectors remain robust.”

Markets see biggest intra-day losses since February 2022, Nifty shuts shop tad shy of the psychologically important mark of 22,000. Sensex too slumps over 4300 points and ends trade at 72,079.

Nifty Bank and Nifty Midcap 100 tanks almost 8% each.

The benchmark equity indices ended Tuesday’s trading session in the negative territory. The NSE Nifty 50 plunged almost 6% to settle at 21,884.50, while the BSE Sensex falls 6.09% to 72,079.05.

Courtesy: NSE

“In the run-up to India’s 2024 general elections (18th Lok Sabha elections), the exit polls were predicting the best-case scenario for the Indian markets with NDA expected to get around 350-360 seats. Indian equity markets surged more than 3% on June 3, from the outcome of the exit poll, predicting a significant win for the BJP-led NDA for the third time in a row. Against all expectations for a huge surge, Indian markets have dropped significantly over 2.5% as early trends show that BJP may not have the huge majority that the exit polls had shown,” said Amit Goel, Co-Founder & Chief Global Strategist at Pace 360, a SEBI Registered Multi-asset PMS & Cat III AIF expert.

Hindustan Unilever, Hero MotoCorp, and Britannia were the only gainers in the Nifty 50. While Adani Ports and SEZ, Adani Enterprises, SBI, ONGC, and Coal India were the major losers in the Nifty 50 on June 04.

Losses deepen in last half an hour of trade. Some of the significant losers in trade including Adani Enterprises, Adani Ports, NTPC, ONGC and SBI see cuts deepen further.

The fall in power stocks intensify after a slight pause. REC, PFC see losses widen.

Courtesy: NSE

The Nifty Smallcap 100 was down 8.5% at 15,636.40 during the afternoon trading hours on June 04.

Commenting on the market reaction post election today Atul Parakh, CEO of Bigul, the digital arm of bonanza portfolio said that the results of LockSabha 2024 have a mixed impact on the market. The results May have a negative impact on the markets and sentiment. However, the long-term outlook and India’s growth story are intact. The corporate earnings are good and growing we have potential of 12-13% growth and average corporate earnings of 15%. India is still the youngest nation, and with an independent government, rural growth and urban development alongside manufacturing are intact.

Parakh also said that the investors should follow a long-term India story, and we have a decade ahead of India. Stay invested and buy in dips should be the strategy. The sectors that may get impacted include FMCG, technology businesses, Afro-Tech, infrastructure, specialty chemicals, and pharmaceuticals.

The Nifty Midcap 100 recovered some losses and was down 7.8% at 49,165.60 during afternoon trading hours.

Courtesy: NSE

As Nifty and Sensex recovers over 3% from day lows selected counters such as Hindustan Unilever, Britannia Industries, Hero MotoCorp, Nestle India, and Tata Consumer Products, whereas the OMC stocks such as HPCL, BPCL, IOCL recover from day’s low .

Commenting on the Dollar Rupee index Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas said Indian Rupee depreciated by 0.37% today as domestic markets feel sharply amid uncertainty over election results outcome. This may have also led to some sell-off by foreign investors. US Dollar recovered from yesterday’s losses on weak Euro which fell on disappointing employment data. US Dollar fell on Monday on weaker than expected ISM manufacturing PMI and construction spending.

Choudhary also added that he expects the Rupee to trade with a slight negative bias amid uncertainty over outcome of election results. Currently, it seems difficult for the ruling party to get a clear mandate/absolute majority. However, Rupee will take cues from final results. Traders may also take cues from movement in the US Dollar and crude oil prices. on the data front, traders may watch out for JOLTS job openings and factory orders data from the US. Investors may remain cautious ahead of RBI’s monetary policy later this week. USD-INR spot price is expected to trade in a range of Rs 82.90 to Rs 84.

“During market elections, uncertainty spikes, leading to volatility. Despite my appetite for risk, it’s unwise to take high-beta approaches. Ahead of recent elections, our PMS held 25% cash and hedged positions, guided by VaR assessments. Despite exit polls’ misleading data causing a 3.5% rally, we stuck to our strategy, explaining it to clients. Subsequently, the market plummeted by 5% post-election results, validating our cautious stance. Our hedges surged by 300%, outperforming most strategies. Risk management isn’t just about downturn protection but staying steadfast amid market noise. Hedging and cash buffers are vital in turbulent times,” said Sonam Srivastava, Founder and Fund Manager at Wright Research.

“Markets rallied 3-3.5% on expectation of a Modi-led NDA win on Monday. PSU (especially banks) led the rally. Today’s polls were not in line with the exit poll outcome. Markets moved more than 4-5% down today,” said Jaykrishna Gandhi, Head of Business Development, Institutional Equities at Emkay Global Financial Services. “We expect a 7-10% downside for broader markets from current levels. We recommend positioning to move from alpha stocks to defensives – Add FMCG, IT, Pharma vs Short on ABB, Siemens, Cummins, Coal India, NTPC, PFC, REC, PNB, Canara bank.”

The Nifty PSE index plummeted by 13.5% on Tuesday, driven by early trends in the Lok Sabha polls indicating a weaker-than-expected performance for the Narendra Modi-led National Democratic Alliance. This decline has affected all 20 stocks on the index, marking a broad-based sell-off.

Nifty 50 is 900 points away from lower circuit level at 20,937.9.

In 2004, Indian stock markets touched the lower circuit of 20% and fell 842 points, one of the steepest one-day falls of that time. At that time, BJP-led NDA had lost general elections to the UPA led by Congress. The UPA gained support from communist parties to form the government. This gave signals to the market that India’s economic reform momentum would end and growth would stall. 

In 2009, markets saw two upper circuits as trading started after the election results were announced on Saturday, May 16. At that time, UPA emerged victorious won 262 seats and made government. Trading stopped for the whole day as the benchmarks hit the second upper circuit as soon as the trade resumed after a break of 2 hours. The BSE Sensex halted trading after reaching at the level of 14,272.62, up 2,099.21 points or 17.24%. While the NSE Nifty locked trading at 4,308.05, up 636.40 points or 17.33%. 

Ambareesh Baliga, Independent market analyst

Markets had discounted the exit polls yesterday indicating a thumping majority – whereas today’s trends show that most of them seem to have got it utterly wrong. Thus the sharp reaction. As long as NDA forms the government, I don’t see a further major crack immediately – whereas we could see a bounce on govt formation but I would tend to believe that we could see markets in a correction zone for the next few months. The govt may be looked as a weak one which will spend more time on managing allies than policy matters.

Deven Choksey, managing director of DRChoksey FinServ

“Market has caught the -fear of possible disruptions in policy regime given the lead of INDIA alliance. Possibility of BJP less than 272 seats in parliament is definitely a cause for concern for the market. As a country, we need consistency of policy regime. Market won’t like any disruptions due to election results.”

Courtesy: NSE

Further, Indian market’s volatility index India VIX soared over 50% to 31.71, biggest single-day gain in nine years.

The Power stocks see deep losses in trade. The Index heavyweights like NTPC and Power Grid corrected 15% each. The other significant losers in the power sector include-

-Coal India

-REC

-PFC

Courtesy: NSE

The VIX is up 39% showing significant volatility in the Indian markets, as investors dump stocks by the dozen. The Sensex is down over 5,000 points and the Nifty is down over 1,600 points. Investors see a bumpy ride ahead as a strong opposition means there would be significant debate in Parliament over any policy decision. In 2019, the BJP managed a single-party majority, but in 2024, it may have to depend on its alliance partners in the NDA.

Nifty Bank Index slides nearly 8% a day after it hit new record high of 51,133. The fall in Nifty Bank Index is in sync with the broad-based profitbooking seen across the market. The most significant losers include PSU biggies like State Bank of India, Punjab National Bank, Bank of Baroda.

IndusInd Bank, Federal Bank and AU Small Finance Bank also saw deep cuts.

The NSE Nifty 50 fell over 6% or 1,414 points breaching 22,000 level to 21,850.40. While the BSE Sensex was down 4,493 points or 5.88% at 71,976.05.