Waiting for verdict, Sensex soars 3.39% on exit polls; FPIs rush to cover short positions

High levels of short positions in the market could see sharp drop, analysts said. Adani group companies witnessed a surge in initial hours of trade.

Sensex, Nifty 50 advance after exit poll suggest return of BJP government (File Image)

5 min readMumbaiJun 4, 2024 05:13 AM IST First published on: Jun 3, 2024 at 10:16 AM IST

DOMESTIC BENCHMARK equity indices Sensex and Nifty surged over 3 per cent to close at all-time highs on Monday after exit polls on Saturday predicted a resounding victory for the BJP in the Lok Sabha elections and third term for Prime Minister Narendra Modi.

The rally in the market, which came a day ahead of the counting of votes and announcement of the results by the Election Commission of India, was primarily attributed to short covering by foreign portfolio investors (FPIs) and also, on fresh buying by overseas investors.

The Sensex closed at a record high of 76,468.78, up 2,507 points, or 3.39 per cent. The 30-share index, which opened with a huge gap-up of 2,600 points, touched an intraday high of 76,738.89. This is the highest single-day gain in Sensex since February 1, 2021, when the index rose 5 per cent, after Covid-19 lockdown curbs including restrictions on inter-state and intra-state movement of persons and goods were lifted.

The broader Nifty 50 rose 733.2 points, or 3.25 per cent, to finish at an all-time high of 23,263.9.

Also Read | Markets and elections: Bulls banking on stability

On Monday, FPIs bought Rs 6,850.76 crore of equities, domestic institutional investors purchased Rs 1,913.98 crore worth of local shares, according to the BSE’s provisional data. Among the NSE firms, the companies that gained the most included Adani Ports (10.62 per cent), NTPC (9.33 per cent), Power Grid Corporation (9.03 per cent) and ONGC (7.43 per cent).

An average of 10 exit polls has estimated the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) to better its 2019 tally, winning over 350 seats. As per the projections, the opposition INDIA bloc’s seat counts will vary in the range 107-201.

“Exit poll has activated the optimism of a memorable win for the ongoing government, PSUs (public sector units) had a humongous rally, in anticipation of continuation of the reform gains, triggering further re-rating. The sustenance of the broad rally is anticipated to continue in-line with the magnitude of the actual tally, as inflows which were sitting on the sidelines in the last 3 months poured in,” said Vinod Nair, Head of Research, Geojit Financial Services.

Also Read | Markets seen surging post exit polls; reforms agenda back in focus

Explained

Rally on hope of stable govt

SEVERAL investors including many FPIs had taken short positions in the weeks leading up to elections expecting an unclear verdict. With exit polls predicting a clear third term for the BJP, these investors ran for cover. This, together with optimism that reforms would continue under a stable government, led to a sharp rally.

The market capitalisation of BSE-listed companies rose by Rs 14 lakh crore to Rs 425.9 lakh crore or $5.13 trillion.

Market experts said several classes of investors had taken short positions in the market and after the exit polls predicted a win for the ruling BJP, the market is witnessing a covering of those positions by investors.

While FPIs holding long position in the markets had taken some short position to hedge their risk in case of an adverse poll outcome, there were other groups of investors who took short positions in line with their expectation that the BJP may not come to power on their own and may need to cobble up an alliance to form the government, they said.

IIFL Securities Lead- Research Jayesh Bhanushali said foreign portfolio managers have been negative on India due to the emerging attractiveness of Chinese stocks and likely election uncertainties. However, the results of the weekend exit polls made short-sellers cover their positions.

“A trend which was witnessed in five months preceding the election results since 2009 was that the FIIs were net positive in the cash segment. However, in 2024, FIIs have sold around Rs 1.26 lakh crore worth of stock in the cash segment since January. We believe that the FIIs are likely to stage a comeback in the second half of calendar year 2024 in India due to steady economic growth, stable government, and a favourable macro-economic environment with the expected rate cuts by the central banks,” he said.

Better-than-expected FY24 gross domestic product (GDP) at 8.2 per cent and S&P’s upward revision of India’s rating outlook to positive from stable also boosted investor sentiments, analysts said.

India VIX, the indicator of the market’s expectation of volatility over the near term, which had surged to 26.19 on May 27 – close to an all-time high of 28.13 seen on June 16, 2022, also dropped 15 per cent to close at 20.94.

Nifty Midcap 50 rose 3.3 per cent to end at 14,919.5. Nifty Bank surpassed the 50,000 mark for the first time. The index rose 4.07 per cent to close at 50,979.95.

Stocks of PSUs rallied the most on Monday, with Nifty PSE index gaining 7.81 per cent and Nifty PSU Bank closing 8.4 per cent up.

“The market expects the continuation of the holistic reform adopted by the government. PSUs will be the most and initial beneficiaries of the expansion in government’s capex in areas like renewables, power and infra,” said Geojit Financial Services’ Nair.

On Monday, Reliance Industries rose 5.65 per cent to end at Rs 3021.25 apiece. State Bank of India’s share gained 9 per cent to close at Rs 905.8 apiece on the BSE.