Stock market investors are jittery, as the BSE Sensex extended its fall to a massive 6,100 points. Investors fear that the BJP may fail to win a clear majority mark of 272 and may have to forego political clout if it comes to power with NDA allies. Team NDA was leading with 297 seats for now, far below the 350-plus seat wins, 400-plus in some cases, projected by a dozen exit polls a day earlier.
This has brought bitter memories of 2004 in investors' minds. Sensex had crashed over 15 per cent on May 17, 2004, its biggest ever percentage fall ever, following a surprise NDA loss. On the other hand, stock indices had hit two upper circuits following UPA II's comeback on May 18, 2009. Markets don't like uncertainty -- it likes political continuity.
This was reflected in fear gauge India VIX that surged 52 per cent to 31.54 level. The gauge suggests the likely volatility in the market over the next 30 days. Analysts had in a BTMarkets survey earlier warned that market the was not prepared for an adverse outcome i.e. a BJP or NDA loss.
"We expect 7-10 per cent downside for broader markets from current levels. We recommend positioning to move from alpha stocks to defensives - Add FMCG, IT, Pharma vs Short on ABB, Siemens, Cummins, Coal India, NTPC, PFC, REC, PNB, Canara bank," said Jaykrishna Gandhi, Head - Business Development, Institutional Equities at Emkay Global Financial Services.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said the steep market fall is due to voting results falling short of the exit polls, which the market had discounted yesterday.
"If BJP doesn’t get a majority on its own, there will be disappointment and this is getting reflected in the market. Also it is possible that Modi 3.O may not be as reform-oriented as the market expected and may turn more welfare- oriented. This is getting reflected in the strength in FMCG stocks," Vijayakumar said.
Kotak Alternate Asset Managers' Chief Investment Strategist Jitendra Gohil recently warned that the stock market may fall over 20 per cent and should take time to fully recover if the NDA alliance fails to form the next government. He had, however, predicted a low probability of such an outcome.
Ahead of results, SAMCO Securities in a response to BT Markets survey suggested that the market was factoring in 20 per cent probability of the NDA alliance winning over 400 seats, a strong 70 per cent chance of it retaining power with over 272 seats; and a low 10 per cent outside chance of NDA failing to secure a majority.
In the third scenario, it suggested a 10 per cent correction for stock market.
PL earlier said its team of analysts caution that the markets are unprepared for a 2004-like election outcome, when the BSE Sensex fell 15.5 percent on the day of the election results.