Stocks to see volatility as elections near end

Indian stocks are likely to witness extreme volatility during the trading week beginning Monday amid exit polls and election outcomes, after key indices Sensex and Nifty touched record highs Friday.

A big volatility in the equities markets is expected on Tuesday, a day after the exit poll projections will be announced, analysts said.

The polling process for 543 parliamentary seats ends Monday, with election in 41 constituencies. This will mark the culmination of a five-week-plus election process to elect the 16th Lok Sabha.

The Indian stock markets key indices Sensex and Nifty soared to record highs Friday, on the back of optimism that the Narendra Modi-led Bharatiya Janata Party (BJP) would be able to form a stable government post general elections.

"As the election D-day is approaching closer, the markets are rallying on anticipation of a favourable outcome," said Dinesh Thakkar, chairman and managing director of Angel Broking.

"In spite of the rally so far, most cyclical sectors are still trading well below their average valuations, and in a longer economic upturn scenario, valuations still leave enough room for healthy upsides as GDP growth and consequently earnings growth in cyclical sectors continues to improve," Thakkar said.

The 30-scrip S&P Sensex (sensitive index) of the Bombay Stock Exchange (BSE) soared past the 23,000-point mark for the first time and hit a record high of 23,048.49 points in the intra-day Friday, surpassing its previous record of 22,912.52 points hit April 23.

The benchmark Sensex closed 650.19 points or 2.91 percent higher at 22,994.23 points.

The wider 50-scrip S&P CNX Nifty of the National Stock Exchange (NSE) also touched a new high of 6,871.35 points, surpassing its previous record of 6,861.60 points.

The Indian markets rallied despite negative global cues. Most emerging markets were under pressure Friday. Key indices of China, Hong Kong, the Philippines and most other emerging markets ended in the red Friday.

Vice president for research and investments at Systematix Shares Arun Gopalan said the rally in the Indian equities markets was mainly due to the expectations of a stable government led by Narendra Modi post election.

"While there were absolutely no global or economic reasons to attribute the move to, the trigger was clearly the expectations of a better than expected outcome for the NDA in the exit polls," Gopalan said.

The exit polls will be broadcast after 6.30 p.m. Monday, half an hour after the last polling booth closes, according to the Election Commission. Effects of the exit polls would be reflected on Tuesday's trading.

Election results will be announced May 16, Friday, which will be the last trading day of the week. May 16 may turn extremely volatile, if election results do not come in line with pre-poll projections.

Most of the opinion polls conducted before the election have shown BJP prime ministerial nominee and Gujarat Chief Minister Narendra Modi a favourite to lead the next government.

Some important macro-economic data is also scheduled to be announced during the week that would have bearing on the markets. Retail inflation data will come out Monday, while data for wholesale price index (WPI) is scheduled to be announced Thursday.