The markets ended flat but clearly showed that the bulls are in command. They allowed a correction on the first two days and then some FII buying, some short covering and futures expiry next week saw a smart recovery and markets ending exactly where they had begun. IT stocks saw a mixed reaction with Infosys being the sole loser among the four stocks which have declared results. While Wipro, TCS and HCL Tech gained, Infosys lost. This shows that there should be an iota of doubt of the going on in Infosys and why so many senior people are leaving the organisation.
Elections to 230 out of 543 seats has been completed and the next round takes place on Thursday which also includes Mumbai. The stock exchanges are therefore closed and expiry has been preponed to happen on Wednesday the 23rd of April.
Markets slowly but steadily are now getting convinced that post these elections there would be a change in government and that the new administration would be stable. It is this belief which is bringing FII money to the markets. On the flip side, the retail investor is quite happy and content that the markets are moving up and he is able to sell shares in which he was stuck. Stock exchange data shows that retail investors have been increasingly selling shares and withdrawing money.
Expiry is unlikely to see any selling pressure as the markets are currently higher than the previous March expiry by 2% and there has been every opportunity for the bulls to exit. The new series which would begin after the Election Day holiday would open with super volatility and the VIX is likely to gain further. Elections get over on the 12th of May which is just about three weeks away and before one can say hey presto we would have results on the 16th of May.
What should an investor do now? Ride the rally and if you are the nervous sort exit closer to the last day of elections. If you are a risk taker continue to ride and hedge yourself with calls and puts so that in either case your profits remain less the premium for options. If you are a trader and trading is the way of life or in short you live dangerously there are plenty of options and strategies that can be considered. One must implement them only after the expiry of the current series or effectively not earlier than Friday the 25th of April.
Some basic facts that one must remember that the base of the index has moved significantly compared to the 2004 and 2009 elections. On a base of 7,000 the circuit filters kick in at 1,400 points which is unheard of. Heavens need to fall for that kind of a movement. Secondly this time the FII money is betting on stability post elections and on an economy which has yet to show definite signs of recovery or revival.
I believe minus a knee jerk reaction of euphoria or disaster, things cannot worsen than what they are. It is this realisation alone that is driving markets and will continue to do so.
Enjoy the ride, enjoy the election potboilers and the summer heat.
