Trading in the equity market will largely depend on two major events this week - general elections result and the RBI interest rate decision - analysts said, adding that the benchmark indices may rally on Monday on exit polls' prediction of a massive win for the BJP-led NDA and strong GDP data.
Exit polls on Saturday predicted that Prime Minister Narendra Modi will retain power for a third straight term, with the NDA expected to win a big majority in the polls. Counting of votes will take place on June 4.
"All eyes are now on the most significant event of the past five years - the outcome of the Lok Sabha elections, scheduled for Tuesday. Before that, market participants will react to the exit polls on Monday.
"The market is approaching the event with caution, and the positive surprise from exit polls can lead to a rally as majority of the exit polls are giving 350+ seats to the NDA. Conversely, a negative surprise from actual results might trigger a knee-jerk reaction in the market," said Santosh Meena, Head of Research, Swastika Investmart Ltd.
Following the election outcome, the next major trigger will be the RBI policy announcement scheduled for June 7, he added.
"A key aspect to monitor will be the behaviour of foreign investors in the aftermath of the election results. On the global front, macroeconomic data from the US and China will also play a significant role in shaping market sentiments," Meena said.
Manufacturing and services PMI data for May are scheduled to be announced during the week.
"Exit polls results, which indicate clear victory for the NDA with around 360 seats completely removes the so-called election jitters which have been weighing on markets in May. This comes as a shot in the arm for the bulls who will trigger a big rally in the market on Monday," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
The bulls will be further emboldened by the better-than-expected 8.2 per cent growth in GDP numbers for FY24 which came after market hours on Friday, he added.
Along with exit polls, market will also react to domestic GDP data on Monday, Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd, said.
As per a report by Emkay Research, "Final outcome, if in line with exit polls, would likely calm investor nerves as political and policy continuity will be good for risk assets in the immediate run and macro stability in the medium term." Last week, the 30-share BSE Sensex tanked 1,449 points or 1.92 per cent while the NSE Nifty plunged 426.4 points or 1.85 per cent.
The BSE benchmark hit an all-time high of 76,009.68 on May 27. The Nifty also reached its lifetime peak of 23,110.80 on May 27.
Arvinder Singh Nanda, Senior Vice President, Master Capital Services Ltd, said, "Historical trends from the previous two elections outcome in 2014 and 2019 have shown patterns, where the market closed with minimal changes after experiencing significant volatility during the early trading hours."
Amit Goel, Co-Founder and Chief Global Strategist at Pace 360 said, "The exit polls yesterday are predicting a favorable scenario for the Indian markets, with the NDA expected to secure around 350-360 seats when counting concludes on June 4th. We anticipate Indian equities to rise over the next 3-4 days, with the Nifty reaching a new all-time high this week. We expect the Nifty to reach approximately 23,200-23,300 levels during this period. Additionally, we foresee the India 10-year yield reaching 6.9% and the INR appreciating to 82.75."
"We believe investors can buy the gap up on Monday, June 3rd, as the above scenario unfolds, with particular emphasis on PSEs, and defense and infrastructure companies. In the longer term, we continue to believe that Indian equities represent the biggest bubble in the history of world equity markets. We expect the Nifty to correct down to 18,000 levels by October 2025. Therefore, we recommend that investors book profits when the Nifty climbs above 23,000 and gradually reduce their exposure to Indian equities," Goel added.
Manish Chowdhury, Head of Research, StoxBox said, "With the exit polls ahead of street expectations, we believe that markets would react positively and the overall tone is positive across all timeframes. Our sense is that it would prudent to continue with the existing equity allocation as markets reward predictability in policy and decision making in the overall economy. With an event risk mostly out of the way, we expect to see higher flows both from domestic as well as foreign investors going ahead. We continue to like the economy-related themes and expect infrastructure, capital goods, renewables, banking and the PSU basket, especially OMCs, to do well going forward. We advise investors to remain constructive on equities and use dips, if any, to deploy fresh capital from a medium to long term perspective. However, investors should focus on stock selection and not chase momentum to generate alpha sustainably over longer time periods."
