Should you play the market today?

Stick around if there is a stable government. If there is a crash, buy blue-chips in tranches

In anticipation of Lok Sabha election results on Friday, the stock market has already rallied around 18 per cent in the past three months.  After the Sensex rose around 1,500 points over three trading sessions since May 9, the past two sessions saw high volatility, with minor movement in the benchmark indices. Market participants, it would seem, are looking a bit nervous before the big day.

While traders and wealthy individuals are expected to play the market aggressively, is there a space for the retail investor, too? Arun Kejriwal of Kris Securities has this simple philosophy: “You can’t fast-forward your profits in one day.” In other words, don’t rush to buy or sell.

The consensus is that a stable government (read Bharatiya Janata Party-led, with 250 plus seats) would see the market rising, adding another 2,000-3,000 points to the rally over the next few weeks, with players predicting a sharp 1,000-point rally on the result day itself. On the other hand, the benchmark indices are expected to take a hit if the number is below 220.  

Hemant Rustagi, chief executive officer, WiseInvest, feels a strong verdict won’t mean the market will rise only for a day. Instead, there will a rally till the Union Budget, when the market gets to know more about the economic policies of the new government. His advice: “I would advise retail investors to stay put if there is a strong verdict. There will be more opportunities in the future.”

Ideally, only stock investors will be able to benefit from a buy or sell call on Friday. Even if any mutual fund investor wants to sell or buy, he will only get the net asset value of the two days later. Only a prolonged rally or correction will allow MF investors to participate.

If there isn’t a stable government, there could be a sharp decline. In such circumstances, retail investors are advised to start buying in tranches. Says a head of a brokerage house: “If the market corrects 15-20 per cent, there would be strong case for investors to buy good blue-chip stocks. In any case, retail investors are always the last to enter when there is a run-up.”

If there is a stable government, the market is betting on decisions on the economic front that will improve the prospects of banking and infrastructure sectors. These stocks, consequently, will do well. Also, given the positive sentiment, higher flows from foreign institutional investors will strengthen the rupee but dampen the performance of information technology (IT) and pharmaceutical stocks.

On the other hand, a weak government will mean market performance will be lacklustre and focus will continue to be on defensives like pharma, IT and others.  Says V K Sharma, head of business, private broking and wealth management: “Retail investors who are unsure should participate through index funds because either way, over the long term, they will do well.” In sum, keep a close eye on the election results but act only if necessary.