The Hindu Business Line : Today's exit polls to govern sentiment

Anywhere in the world, the stock markets are generally submissive to the political authority; revolt only when their business interests are trampled upon. The politics, more specifically political ideology, has always been given a short shrift by the markets.

THE stock market is betting heavy on the return of National Democratic Alliance at the Centre. Apart from the sentiments expressed by the market participants and movement of the indices with reference to the possible outcome of the general elections, the outstanding positions in the derivative segment have also been indicating that the market is increasing commitments in anticipation of a continuation in the governance.

The total of open positions till the close of trading in the derivatives contracts on Friday increased by 20 per cent compared to same period in March and 8.3 per cent week-on-week.

Is this an expressed bias or a tendency to cling onto the status quo? A majority of the key market players feel that the continuity of the economic policy would serve their interest. Juxtaposed with the period before the last general election, one gets a further confirmation of the market's mindset against uncertainty and discontinuity.

Five years ago, the market turned bearish before the elections on the apprehension that the then ruling regime might not come back to power. The premise remains the same this time around, though manifestation is different based on the objective reality.

Interestingly, if somewhere down the election run-up the market senses that the opposition is coming up with a clear majority, it may not hesitate to readjust itself. The market per se is highly reactive to political instability but is flexible enough to smell stability amid shifting sand.

This week, the third phase of the poll on Monday will throw up another set of indicators through exit polls. It is perceived that if the exit polls suggested that the Congress and their allies were closing in on the NDA and its number of seats might come down to a tricky zone where its stability would be in doubt, then market may turn somewhat bearish. But, if the signals are otherwise, then market would tend to loosen restraint.

Last week, market came close to throwing current caution to the wind. The BSE Sensex resistance at 5,951 points was broken intra-day. However, this could not be sustained. The break-out for the benchmark could happen only on confirmed indication of an end of electoral uncertainty.

Inherently market remained bullish at present. The corporate results have been fairly decent and, on the economic front, negative developments have been few and far between.

The derivative settlement on April 29 is likely to follow the electoral cues. Swings in the current sentiments are likely to see rollover or winding up of the positions. Any major embarrassment for the ruling regime during the elections is also likely to affect market sentiment.

The small stocks continue to be favourites of the market. A section of bulls are expecting a big-bang return of the retail investors after the elections — initially in the mid and small caps, followed by investments in the big ones.

This retail entry, (unfortunately at a relatively higher level) if happens, is likely to change the complexion of the market, at least in the medium term.

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