Mkt course hinges on election results

It’s better for short-term investors to stay away from the markets; Long-term players can buy blue-chip stocks.

The Indian stock markets fell, with the benchmark index declining for a third week in a row, in the wake of concerns that the rupee would weaken further and US's QE 3 tapering would happen earlier than what was indicated earlier by Janet Yellen, the nominee Federal Reserve chief. Though the decline was a part of the global phenomenon last week, Indian markets lost more because of a fresh weakness in the Indian currency and fast approaching end of the November series of futures and options contracts. In addition, uncertainties pertaining to the outcome of the ongoing assembly elections in five states have also played some role.

The fact that foreign institutional investors (FIIs) turned net sellers of equities for the first time after a month also created negative impact on the minds of the market men who then preferred to remain mere spectators than being participants in the action.

The BSE Sensex which had reached a life-time high of 21322 points on special muhurat day trading on November 3 lost nearly 1104 points in the following three weeks. The net loss suffered by the premier index on the closing basis turned out to be 1022 points in these last three weeks. The net loss suffered last week, however, was small at 182 points as the markets had jumped up significantly in the first two trading days on the news of spectacular reforms by China and a statement by Janet Yellen implying that QE 3 tapering would be implemented only after the US economy improved.

With the first three weeks of the new Vikram Samvat witnessing sustained erosion in stock values, market men will prefer not to add to their long positions in the new week especially when the end of the November series of futures and options is close-by. It would be only bear operators who might cover their short positions as prices of equities have gone down to levels that bring them huge fortunes. The short duration winter session of the Lok Sabha is also scheduled to commence from December 5, which too could perform as a dampener to the markets as chaos in any Lok Sabha session has now become a custom and during such chaotic situation, investors generally do not pick up stocks.

The markets would also wait to watch the outcome of the state assembly elections on December 8 and if the results are in favour of the present ruling party at centre, the Congress, there could be selling spree that would make the markets go further down. However, an upper hand of the BJP in four of the five states that passing through voting may help the markets jump up but that could be only a temporary phase because the win of the chief opposition party at the centre may make the ensuing Lok Sabha polls murkier.

Thus, the near future events that are to impact the market trends are more of a negative nature and may not allow the benchmark index cross over the life-time peak of 21322 so soon. The long-term primary trend, however, has turned bullish and therefore, the markets can be expected to shoot up in May, 2014 when the Lok Sabha election results would be out. The assumption that the markets would shoot up is arrived on the likely outcome of the Lok Sabha polls that indicate a winning situation for BJP as the chances of the present government coming back to power have been reduced greatly due to various adverse factors that readers are well aware of.

December is a month for the FIIs to contract their market activities to very small levels as their fiscal year end draws closer. Also these are being mainly controlled by the nationals who love to go on vacation during Christmas. Thus, a huge buying support from FIIs cannot be expected in December.

The markets are most likely to witness narrow price movements in the days to come and the short duration changes in prices would be governed by local events and news from the foreign countries. In such conditions, it would be better for the day-traders and short-term investors to stay away from the markets. Long-term investors can certainly pick up best-graded and blue chip stocks with a view to holding them for a period of not less than nine to twelve months.

In the meantime, India's forex kitty has swelled by $ 1.46 billion in the week ended November 15, the second consecutive week, taking the overall reserves to a healthy $ 283.57 billion. This news helped the rupee value to stabilize a bit on Friday and the trend might percolate in the new week also in which case the markets may show a better trend in the initial days of trading in the new week thus offering an opportunity to the bulls to off-load from their long positions.