Sensex, Nifty surge over 3%, analysts advice investors to remain cautious

From life-time high to bloodbath, followed by recovery, that’s how the Indian stock market reacted pre, post and on the day of Lok Sabha elections 2024 result. BSE Sensex and Nifty 50 which settled on historic high on Monday, tumbled about 8 per cent on June 4 and on Wednesday they ended day’s trade in the green, closing over 3 per cent.

Throughout Wednesday, the Indian benchmark equity indices witnessed heightened volatility as investors digested Lok Sabha poll results which showed NDA forming the government once again and Narendra Modi becoming the Prime Minister for the third consecutive term.

BSE Sensex ended up 3.20 per cent or 2,303.19 points to close at 74,382.24, while Nifty 50 settled 3.36 per cent or 735.85 points higher at 22,620.35.

All stocks from the pack were trading in the green, with IndusInd Bank and Tata Steel leading the charge.

All sectoral indices finished positively, with Auto, Bank, FMCG, Metal, Telecom, and Media sectors up 4-6 per cent.

The BSE Midcap index rose 4 per cent, while the Smallcap index gained 3 per cent.

India VIX dropped by 29.4 per cent intraday and settled at 18.885.

Will the upward trend continue?

Sentiments of investors continue to remain mixed. Vaibhav Porwal, Co-founder of Dezerv, however, said: “In the current market scenario, the investors should remain cautious about investing in momentum stocks or small cap stocks which have remained overheated over the past two years.”

“Any sustained period of sideways or downward movement in momentum stocks can trigger a sell-off in these stocks. Investors, therefore, should consider the risk involved before making such investments,” Porwal further said, adding that “a steep fall in the market without any structural change in the fundamentals must be regarded as an opportunity. We believe that the investors should capitalise on this opportunity for fresh investments in equity.”

Porwal further suggested that investors “should keep in mind that a BJP-led coalition government is not necessarily bad for the economy, and this is not the first time we will see a coalition government. From 1989 to 2014, our GDP grew by more than 8% annually while a coalition government was at the Centre. What we saw in the markets yesterday was a knee-jerk reaction. As the speculative trades built around election results unwind and as clarity around the new government emerges, markets will find their ground.”

“Indian benchmark indices erased some of the previous day’s losses and ended higher… After a sharp correction following the Lok Sabha election results, the Nifty surged 6.16 per cent from Tuesday’s low, showing a strong recovery following Prime Minister Modi’s speech,” Mandar Bhojane, Equity Research Analyst at Choice Brokerage said.

“According to the options data, the highest open interest (OI) on the call side is at the 22,800 strike price, followed by the 23,000 strike price. On the put side, the highest OI is at the 22,200 strike price,” Bhojane further said.