Weekly outlook: Market reaction to exit polls and general election results | India analysis

Indian stocks have been through a particularly turbulent period, hitting a lifetime high last week and then falling more than 400 points in the same week. Over the past five sessions, the Nifty 50 index has fluctuated within a range of 693.80 points before ending with a net loss of 426.40 points (-1.86%) for the week.

As markets open on Monday, the exit polls are expected to be positive, with the BJP winning 350-370 seats, suggesting the current government will remain in power for a third term. On Tuesday, markets will continue to react to the election results. These events are expected to result in greater volatility and greater market volatility than usual. Due to market gaps and the potential for increased volatility, we are issuing this note in lieu of our regular weekly outlook.

Given these significant external events, focusing solely on resistance and support levels may be less relevant. Because the market often ignores these levels at times like these. Instead, it is more useful to consider the potential range of market movements.

An examination of the options data for Nifty’s June 6 expiry reveals maximum Call OI accumulation at 23000 and 23500 levels while Put OI is significant at 21900-22000 levels. This means that in a worst-case scenario, the upside potential of Nifty may reach 23000 or 23200 levels, while the bearish support may be found at 21800-22000 levels.

It is important to understand that options data is neither a leading nor a lagging indicator. This data is consistent with current market conditions and is subject to change. This data provides situational awareness and helps form a broader market view.

Given the strong positive reaction to the exit polls and subsequent election results, the best approach is to cautiously protect profits at higher levels as the market may still experience some profit-taking after a day or two of strong positive reaction. That’s it. If Nifty clearly surpasses its previous highs, fresh aggressive buying should be considered. Until then, it is wise to continue investing in stocks with relatively strong performance, while carefully protecting profits at higher levels.

Milan Vaishnav, CMT, MSTA

Consulting Technology Analyst

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