After Exit polls predicted a thumping majority for the National Democratic Alliance with around 360 seats, markets saw a resounding bull run today. The exit polls reversed the election jitters plaguing the markets throughout the last month. The Sensex rallied over 2,500 points today before the closing bell whereas Nifty saw its biggest jump in previous four years today and ended the day over 700 points higher. On Sensex, Adani Ports, NTPC, SBI, Power Grid Corp and ONGC were among the top gainers while losers included Infosys, LTIMindtree, HCL Technologies, Nestle and Dr Reddy's Laboratories. All the sectors ended the day in green with PSU Banks and Energy being the top performers.
As all eyes are on the Lok Sabha election result tomorrow there are several factors retail investors should be mindful of which will help them steer away from the strategies of experienced traders. Historical trends from the previous two elections' outcomes in 2014 and 2019 have shown patterns of the rally in markets in days after elections. The 2019 election results followed with an 800-point jump in Nifty in 10 days.
NISM-certified Research Analyst Hariprasad Menon said, "The best thing to do is to completely stay away from options and focus on stocks that come in favourable range with a long-term perspective."
Prasad explained the reason for his suggestion, "In index options trading, many options with sell positions are set to expire only on Thursday. The volatility index (VIX), also known as the “fear gauge,” plays a crucial role here and governs the premium of these options. VIX has slipped to 20 from 25, and will dip further down to 15 in the coming days."
He said a positive surprise above the exit polls closer to the 400 mark for NDA can lead to a rally. "Market is already at a high so any negative surprise from exit polls where NDA sustains its 2019 tally might trigger a knee-jerk reaction and cause a dip in the market," Menon said.
Stock Broking and wealth management company Anand Rathi suggested that traders should focus on Auto and ancillary stocks, Cement Companies and Infrastructure as the NDA government continues to give a major push to logistics and infrastructure. Further Banks, NBFC and PSU stocks are also recommended as they act as a corollary to India's growth story.
Says Avinash Luthria, SEBI RIA at Fiduciaries, "Futures and Options and stock trading by retail investors is a harmful addiction that is identical to gambling in a casino. Instead, sensible investing uses simple products like Fixed Deposits and Nifty 50 Index Funds - Direct Plan-Growth Options for the long term. To control emotions, it is best for the Mutual Fund investments to be via a SIP and for the performance of the portfolio to be checked only once a year."
Ajay Pruthi, Sebi RIA and founder of PLNR said, "Retail investors should be careful after an initial jump in stocks, there might be some selling to take profits."
He added, "Political events can cause short-term market fluctuations, but long-term investors should remain patient and stick to their investment strategy. Focus on fundamentals and invest in companies with strong fundamentals. Avoid making decisions based purely on political news." "If you have short-term financial goals, consider reallocating funds from volatile assets like equities to more stable ones like bonds," he said.
