Assembly Elections and the Markets for Tomorrow!

So, BJP whitewashed Congress in Rajasthan and M.P., Won comfortably in Chattisgarh and secured majority seats in Delhi state elections. Arvind Kejriwal's Aam Aadmi Party surprised everyone (that's what Sonia Gandhi said!) to win 28 seats in Delhi to become the 2nd largest party after BJP (31).
That's how the tally looks like as of now:



Courtesy: Times Of India


These are favorable moves and something which the markets have been contemplating for past few sessions.
The impact tomorrow would be a sharp gap up. Nifty closed at 6259.9 on Friday which is only 57.45 points its all time high on a closing basis. Intra-day high stands at 6357.1 made on Jan 8, 2008. Most probably, Nifty may break the intraday high soon after market opens. However, sustenance is in question and for very valid reasons.


1. Nifty touched 5972 on 22nd Nov 2013 and since then has climbed 288 points i.e. 4.82% and has probably factored in the election results. These results, although that there is a high possibility of BJP toppling Congress in the general elections in 2014 and thus Narendra Modi becoming the Prime Minister of the country, do not convert into immediate triggers for the economy and hence are not something markets will hang on to for long. Thus, once the initial exuberance in the morning, Nifty may slide lower as those who have already anticipated these results would like to book out profits.

1. Another factor impacting the move will be the over-subscription of Powergrid FPO which received about Rs 47,462 Cr of bids for its sale of Rs 7084 Cr. worth of shares. Thus, this money
   
   is blocked and will not be available tomorrow to fuel the rally. This blocked amount (Rs 40,378) alone could have added 59.85 points in the Nifty.

1. FIIs have invested about Rs 3527 Cr. in the past week probably anticipating these results. With a news heavy week ahead, they would also like to take a cautious stance and curtail any fresh buying in the market.

1. Profit booking may be witnessed in election related stocks such as Adani Power, Adani Enterprises, BHEL etc. (i.e. Companies said to be close to Narendra Modi, or from Capital Goods sector)


Thus in all likelihood, tomorrow will be a market which traps retail investor at the top and then big investors book their profits on his cost. Sugar sector companies should show positive moves as the recent developments are mildly positive for the sector. Overall, traders should look at shorting opportunities in heavily run up stocks.