Markets on edge on the eve of election result

NSE's volatility index shoots up 13%; Brokerage, client collateral being monitored: Sebi; RBI ready to infuse liquidity if needed

The stock markets were on edge ahead of the election result day, with an index tracking volatility rising over 10 per cent on Thursday, even as losers outnumbered gainers on the bourses.

The National Stock Exchange’s VIX, the so-called fear gauge of the markets, surged 13.4 per cent to 36.76, as traders built up positions that would profit from a large move.

“Premiums, which had come down lately, shot up again on Thursday. Investors bought on-the-money call options at 7,500 and put options at 6,700 levels. We are advising investors to book profits and hedge their positions for now,” said Amit Gupta, head of derivatives, ICICI Securities. (BRACING FOR A CLIFFHANGER)

There were 1,830 stocks that ended with losses on BSE, against 1,170 that ended with gains, as investors switched bets ahead of Friday, when the result of the country’s general elections will be out.

“Investors who came in early and are now looking at more than 10 per cent gains are booking some profits. Midcaps have seen profit booking as investors have moved money to largecap stocks, which are expected to do well if the NDA (National Democratic Alliance) comes to power, as anticipated,” said U R Bhat, managing director of Dalton Capital Advisors (India), a registered foreign institutional investor (FII).

FIIs were net buyers to the tune of Rs 934.94 crore on Thursday, even as domestic institutions net-sold Rs 385.40 crore worth of stocks. Both BSE’s Sensex and the National Stock Exchange’s Nifty, after rising around seven per cent since last week, ended with modest gains on Thursday. The Sensex rose 90.58 points, or 0.38 per cent, over its previous close to end the day at 2,3905.6. The Nifty closed at 7,123.15.

Meanwhile, key regulators said they would be keeping an eye on the market on Friday. Securities and Exchange Board of India (Sebi) Chairman U K Sinha said regulators were closely monitoring market movements on the day of the results.

“Sebi, along with the Reserve bank of India (RBI) and the finance ministry, has prepared a strategy... We are ready for any unusual movement in the market. We are ready with the guidelines as to what action will be taken in what situation,” Sinha said, adding exchanges were looking into the collateral positions of clients and brokers and conducting a daily stress test. He also expressed confidence that risk management and payment & settlement systems would work fine.

RBI Governor Raghuram Rajan said the central bank was keeping an eye on volatility. “…We are trying to minimise undue volatility in markets. RBI is ready to infuse liquidity on Friday, if needed,” he said, adding contingency plans were ready to deal with any eventuality.

The rupee appreciated sharply to a 10-month high to end the day at 59.29 a dollar, against Tuesday’s close of 59.68.

The rupee continued to strengthen on foreign capital inflows after exit polls projected NDA would form the next government. Greenback selling by exporters and strengthening of other currencies against the dollar also supported the Indian currency.

“The market is prepared for NDA coming to power with a reasonable majority. It can be volatile if the Bharatiya Janata Party manages to get 270 seats or if NDA gets fewer than 250 seats,” said Bhat.