Soaring Indices And Perplexed Investors

Equity markets are full of surprises and every time you feel you have almost seen each and every surprise, the equity market throws a new one on the investors. This was exactly what happened on last trading session of preceding week. On Friday (Last trading session of preceding week) while everyone on the street was expecting the equity indices to remain range bound, the Sensex and Nifty surprised everyone on the street as both the indices moved northwards to close almost near the all time high levels. While the Sensex closed at 22994 (Up by 650 points) the Nifty closed at 6859 (up 199 points).

The move took everyone on the street as ahead of a weekend and instability amongst the investors about the formation of BJP government, not many were expected to take bold steps. What was surprising to see was, with last leg of election happening on the May 12th, the exit poll results were to be announced on the 12th evening. The impact of the same could have been seen on the May 13th. As a result a major movement either side was expected only on 13th rather than the 16th. With only few trading sessions left for exit polls, hardly there was possibility of markets making any significant move. In addition to the domestic uncertainty the geopolitical factor from Russia and Ukraine, made the matter more difficult. With these many factors, even we had stated that the markets would remain range bound. However exactly opposite happened and indices sky rocketed.

So, what was the reason behind such a steep move in the markets? If rumors are to be believed, the exit polls which are supposedly put on hold by the election commission were leaked. The outcome in the same clearly provided a full mandate to the BJP government. As a result there were lot of negative positions (Created on cautious mood of the investors) were unbundled.

While this was the scenario on domestic ground, the US markets also witnessed an up-move. Backed by few of the good earnings results and the statement from Fed Governor about helping the recovery in economy, seems to have augured well for the indices. The Dow closed in green with gains of 32 points (0.20%) and S&P 500 Closed in green with gains of 0.15%. However the poor macroeconomic data resulted in European markets witnessing some slide. The Dax closed down 0.27%, FTSE was down 0.36% and CAC40 was the biggest loser down 0.67%.

Now what are the factors that would be affecting the markets going ahead? The most important factor would be the Russia and Ukraine issue as the referendums are now treated as illegal. Hence some geopolitical uncertainties are expected to emerge on the horizon.

On the domestic front, the last phase of election is today and in the evening most of the news chandelles would be announcing the exit poll results. Exit poll results are expected to be more accurate than the pre poll equations. On data front, IIP would be announced today and inflation numbers are also scheduled today. But, the most important event is the outcome of general election that is schedule on Friday.

As for the other Asian markets, most of the leading indices are trading in red. Ahead of the industrial production data for Chinese markets the indices seems to be under pressure as investors have turned cautious. Apart from that Chinese President Xi Jinping said that the nation needs to adapt to a “new normal” in the pace of economic growth. This has also impacted the equity markets over Asia.

The Nikkei is trading in red with loss of 32 points (0.23%) and even Hang Seng is down (0.20%). Shanghai Composite however seems to have accepted the new growth rate and hence is up by 0.63%.

SGX Nifty is trading in green at 6910 with gains of 15 points (0.22%). We are expecting a positive opening for the Indian equities. However, movement throughout the session is still unpredictable and perplexed investors would be looking cues to understand the direction.