As the markets opened on Tuesday, several critical factors were at play, setting the stage for a dynamic and potentially volatile trading day. The Indian stock markets had already shown significant movement on Monday, spurred by positive exit poll results and a series of influential economic indicators.
The event of the day is the announcement of the general election results. The outcome of these elections is expected to significantly impact market sentiment and direction. On Monday, the Indian markets celebrated the exit poll results, leading to new all-time highs for the benchmark indices, NIFTY50 and SENSEX, which recorded their best single-day gains in three years.
The markets responded positively to the prospect of the current NDA-led government securing another term. Analysts believe that a decisive victory for the incumbent government will further bolster market confidence and likely trigger a continued rally.
In addition to the domestic political scenario, FIIs made a noteworthy shift in their market behavior. After a month of heavy selling, with nearly ₹40,000 crore offloaded in May, FIIs turned net buyers on Monday. They purchased equities worth ₹6,850 crore in the cash market. This change in FII activity is seen as a significant boost for the market, providing additional support to the bullish trend observed in recent sessions. The return of FIIs as net buyers is a positive signal, suggesting renewed confidence in the Indian market’s prospects.
Global market trends are also playing a crucial role in today’s market dynamics. The global markets closed largely positive on Monday, with major indices like the NASDAQ and S&P 500 closing approximately 0.5% higher. However, Asian markets presented a mixed picture. While Japanese and Korean markets traded in the red, Chinese and Hong Kong indices showed gains. These mixed signals from global markets add an element of uncertainty but also provide a broader context within which the Indian markets are operating.
Another important factor to consider is the activity in the futures market, particularly the short covering by FIIs. Last week, FIIs had heavily bet against the market by adding nearly 3 lakh short contracts, anticipating an unfavorable election result. However, the exit poll results prompted a reduction in these short positions, dropping from 3.5 lakh contracts to around 2.5 lakh contracts. Market experts believe that a favorable election outcome today could lead to further massive short-covering by FIIs, potentially driving a substantial upward movement in the market during the second half of the trading session.
The India VIX, a key indicator of market volatility, saw a dramatic decrease on Monday, dropping nearly 15%. This decline in volatility suggests a reduction in uncertainty among investors and traders regarding the election outcome. A lower VIX is generally seen as a positive indicator, reflecting a more stable market environment. This stability, coupled with positive political and economic indicators, could provide a conducive environment for market growth.
Today’s market is poised at a critical juncture, influenced by a combination of domestic political outcomes, foreign investment activity, global market trends, and volatility indicators. Investors and traders are advised to stay vigilant and responsive to these triggers as the day’s trading unfolds.
The outcome of the general election will undoubtedly be the most significant determinant of market direction, with the potential to either sustain the current rally or introduce new volatility. The positive sentiment from FIIs returning as buyers, along with favorable global market trends and reduced volatility, sets the stage for an intriguing and potentially profitable trading session.
