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Indian markets will be on tenterhooks as the day of reckoning nears. Having largely factored in a Bharatiya Janata Party (BJP) victory, the market faces more downside risks while the upmove could be capped, say market analysts. Investors will draw first blood from the exit polls, which will start trickling in from Monday once the polling is over.
"Earlier, May 16 (results' day) was expected to be the major day but now, the focus seems to have shifted to the exit polls. It (the exit polls) was the biggest trigger for the dramatic rise that we saw in the market on Friday," said Arun Gopalan, vice-president (research) at Systematix Shares and Stocks.
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On Friday, the markets saw a sharp surge of about three per cent anticipating Narendra Modi-led BJP would sweep the polls. The BSE Sensex surged by 650 points, or 2.9 per cent, to close at an all-time high of 22,994, after touching an intra-day high of 23,048. The NSE Nifty rose 199 points or three per cent, to close at 6,858.80.
The surprise upmove in the market has left some sections believing that there is some more steam left in the rally prior to May 16.
"We could see further upmoves of even 10 per cent in the Nifty. From a stock-specific perspective, there is still more room for valuations to expand," said Taher Badshah, senior fund manager and co-head (equities) at Motilal Oswal Asset Management Company.
For the week ahead, the Nifty is expected to touch 7,100 levels on the upside, with support at 6,780 levels. On the downside, it could fall to 6,450 levels, analysts said. There could be a sharp sell-off in case of a disappointment in the exit polls, they pointed out.
"If the exit polls suggest that the total number of seats for the NDA (National Democratic Alliance) could be well below the 220 mark, that could be cause for disappointment with the indices correcting by four-five per cent," said Badshah.
Trading activity is likely to get a further boost as investors would look at booking profits and increasing exposure to derivative products. "The sensible approach suggests that one shouldn't hesitate to surrender some gains and buy some insurance through derivative instruments. For trading perspective, one can consider buying banking, infrastructure and capital goods stocks in the coming week," said Jayant Manglik, president (retail distribution) at Religare Securities.
Shares of the mid- and small-cap companies could also be in focus next week as these stocks were left out of the rally last week. The BSE mid-cap index was up 1.3 per cent, while the BSE small-cap was up 0.8 per cent through the week.
The week ahead will also see crucial macro-economic data like April inflation numbers, March Index of Industrial Production (IIP) figures being released along with a slew of corporate earnings numbers.
Inflation numbers, having improved over the past few quarters, are likely to be in line with market expectations. March IIP numbers are also expected to be in the positive territory. While these could lend to the optimism in the market about an economic recovery, analysts said it would have little impact on flows into the market.
"Next week, it will only be the election that will drive flows into the market. Everything else would almost be a non-event in terms of flows," said Navneet Munot, chief investment officer at SBI Mutual Fund.
Last week, foreign investors were net-buyers pumping in close to Rs 2,349 crore while domestic institutions were net-sellers at Rs 734 crore.
Markets will also keep an eye on the March-quarter corporate earnings numbers of large-cap names such as Tata Steel, Tech Mahindra, Bajaj Auto and Dr Reddy's, among others.
"Earnings so far have been lacklustre. Only those results that are in line with market expectations will see a move up. Otherwise, these numbers are unlikely to contribute to the overall direction in the market right now," Badshah noted.
