“Given that there will be a postal ballot in a large number of ‘swing’ states the actual results of the election may not be known for days or weeks, even then, one can assume that these numbers may be contested. And it is this what worries the market not an outright victory for either of the candidates. Expect these concerns to escalate nearer to the election,” Holland said.
Since their March 2020 low, the Indian benchmarks – the S&P BSE Sensex
and the Nifty 50 – have gained 47 per cent and 48 per cent, respectively on the back of strong foreign flows and active participation by domestic retail investors. In case the liquidity flow reverses, analysts expect the Indian markets
to correct sharply. Moreover, the recent tailwind of the weaker dollar may reverse in the short-term as investors head back to safe havens, they say. Profit booking, according to Holland, may be seen more actively in mid-and small-caps in the short-term.
“Ordinarily we are not expecting the US election to significantly impact Asian equities but with equity markets
already trading one standard deviation expensive, events could cause much bigger moves than normal,” wrote Niall MacLeod a strategist at UBS in a September 17 co-authored note with Jiamin Shen.
Besides the upcoming elections in Bihar and the Q2FY21 results of India Inc, new issues / initial public offers (IPOs) of companies may also see investors book profit and rotate money form the secondary to the primary market, which in turn could keep the upside of the frontline indices capped amid volatility in the near-to-medium term.
According to data made available by Geojit Financial Services, as many as 80 firms have approached the regulator Securities and Exchange Board of India (Sebi) to get the necessary approvals for tapping the primary market through the remainder of FY21. These firms are planning to raise equity capital totaling Rs 51,515 crore from the primary market, the brokerage said.
“Chemcon Speciality Chemicals, Computer Age Management Systems (CAMS), Mazagon Dock Shipbuilders, UTI Asset Management etc will fall under the mid-and small-cap segments, which is a market segment that has attracted a lot of interest from retail investors. Retail participation is likely to be high in the upcoming issues as well, which can put a limit on the rise of frontline indices amid volatility,” said G Chokkalingam, founder and chief investment officer at Equinomics Research.
Indices extend losing streak
Indices pared intra-day gains to end with losses for the fifth straight session on Wednesday, as sentiment remained risk-averse despite supportive cues from global markets. The Sensex came under selling pressure in the afternoon trade, finally closing 65.66 points, or 0.17 per cent lower, at 37,668. The Nifty shed 21.8 points, or 0.2 per cent, to close at 11,131.85. PTI