Political thriller keeps St on edge

Investors were provided a big buying opportunity in an overheated market as indices went into a free fall in early trade on Monday.

As the start of the vote counting coincided with the opening of the financial markets, the BSE Sensex dropped 850 points as early trends showed a close fight between BJP and Congress.

After falling about 850 points in opening trade, till about 10 am, indices were in the negative territory, but started to trade in the positive zone after it became clear that BJP will return to power for a sixth straight term in Gujarat and will overthrow Congress rule to form government in Himachal Pradesh.

In the extremely volatile session, this resulted in 1,000 point swing for Sensex and 369 points for Nifty.

The 30-share BSE index hit a high of 33,801.90 and settled up 138.71 points, or 0.41%, at 33,601.68, its highest closing since November 29.

The 50-share Nifty reclaimed the key 10,300-mark to close higher by 55.50 points, or 0.54%, at 10,388.75, its highest closing since November 27. It moved between 10,074.80 and 10,443.55 intra-day.

M&M hit it big in the Sensex pack, soaring 2.71%, while Sun Pharma and SBI gained up to 2.06%.

In contrast, YES Bank, Coal India, Infosys, ITC, Kotak Bank, HDFC and NTPC succumbed to rush for taking profits, which narrowed the gains.

The metal index advanced 1.83%, followed by auto, consumer durables and healthcare. However, realty finished in the negative zone. Given the improvement in sentiment, the broader markets played along, with the mid-cap index rising 0.76% and small-cap 0.45%.

Domestic institutional investors offloaded equities to the tune of Rs 635.44 crore while foreign portfolio investors net-sold shares worth Rs 921.03 crore last Friday, provisional figures showed.

This resulted in a wild 1,000 point swing for the Sensex from a low of 32,742 in the opening trade to 33,509 at 10 am before reaching a high of 33,801.90 points in afternoon trade, its highest level since November 7. Nifty gained 110.30 points at the day's high of 10,443.55.

The breadth was positive: on the BSE, 1,467 shares rose and 1,178 shares fell.

The investors and analysts, shrugging off initial jitters, were no doubt gung-ho about the implications of the political verdict particularly about the continuation of the reform process.

"The results of these elections will have widespread ramifications in the form of boosting BJP's chances of forming the government at the centre once again in the 2019 general elections and giving it enough breadth to continue with its bold reforms and fulfil its mandate for economic development," said Karthikraj Lakshmanan, senior fund manager of BNP Paribas Mutual Fund.

"The demonising of major structural reforms like the GST and demonetisation was squarely rejected by the electorate. This would reinforce government's resolve to roll-on reform juggernaut benefiting the economy. This would lead to an acceleration in foreign and domestic investments," said Ajay Bodke, CEO and chief portfolio manager at Prabhudas Lilladher.

While the victory for BJP would ensure that the reform juggernaut would continue to roll giving further fillip to the markets, eventually earnings will ultimately decide the direction of the market, analysts said.

"This government has brought reforms, which are more than incremental in nature. Any further impetus on the same will prove to be a sentimental boost for equity markets. Having said that, equity markets are eventually slave of earnings and will track the same for future performance," Rakesh Tarway, head of research at Reliance Securities said.

BACK IN BLACK

• The breadth was positive: on the BSE, 1,467 shares rose and 1,178 shares fell
   
• The 30-share BSE index hit a high of 33801.90 and settled up 138.71 points