With the counting of votes for the general elections today, equity and forex markets are expected to be volatile as the counting process would be through market hours and conclude by late evening.
However most expect the results -- which political party would form the government -- would be known by noon.
U K Sinha, chairman of the Securities and Exchange Board of India (Sebi), said, the regulator was prepared for all eventualities in markets. at an event organised by industry body Assocham on Thursday, Sinha said the stock market regulator along with the Reserve Bank of India and the government have prepared a strategy to deal with any unusual market movements.
Thursday, indices were volatile and the volatility index, VIX, was as high at 13.4% at 36.765 as against the previous day's 1.16% at 32.42. Profit-taking was witnessed at higher levels on Thursday and the indices ended marginally higher with the Sensex closing 0.38% higher.
Both the indices, Sensex and Nifty gained 90.48 points at 23905.60, and 14.40 points at 7123.15, respectively.
The rupee has been gaining strength more prominently since last Friday when foreign institutional investors (FIIs) stepped up their investments aggressively to Rs 7,593.40 crore, adding 1561.56 points to the Sensex till date and 463.30 points to the Nifty. For the current month, their net market investments so far, stood at Rs 13,327.50 crore, of which Rs 8,609 crore were in equities and the remaining in bonds.
The buying increased foreign inflows and the demand for rupee leading to an adverse scenario where the once weakening currency began gaining strength against the dollar. Since April 23, the currency has been gaining from 61.09 a dollar. Thursday, the rupee closed at 59.29 to the greenback. Market participants are now expecting the rupee to gain further by Rs 2 to 57 a dollar if the Bharatiya Janata Party gets the majority to form the government.
"It all depends upon the actual numbers the winning party get," said Moses Hardings, group CEO and chief economists at Srei Infrastructure Finance Ltd. If BJP and alliance surpass 300 seats, 57 to the dollar is likely. However, if the numbers are disappointing and less than majority, we could be back to 59-60 to the dollar," he said.
For the equity markets it's the reverse, the markets could be at new highs if the number crosses the 300 mark. "I do not expect much volatility on Friday, if the numbers are on expected lines of the exit polls (272 seats) and Nifty could hover around 7000-7100," said U R Bhat, managing director, India of the UK-based Dalton Strategic Partnership LLP.
"If there is a surprise, then no more than 5%. However, if there is substantial upward variation from the exit poll forecast to over 300 seats, the Nifty could rise well above 5%," he said.
In late trades, the Singapore Nifty Futures was trading 32 points down at 7108.
In the meanwhile, all eyes are set on the official announcement of the election polls. Going by the recent investments by FIIs, it appears, they are bullish on India.
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