Analysts attributed the market behaviour to expectations of a new government under BJP in the 2014 elections to be more business-friendly and bring fresh policies to boost growth.
Stocks and the Indian rupee opened with strong gains after results for exit polls for four states were released yesterday night with most predicting that BJP would be the leading party in Rajasthan, Madhya Pradesh, Chhattisgarh and Delhi.
The S&P BSE Sensex started on a positive note and climbed as much as 457 points to an intra-day high of 21,165.6.
Profit booking pared the gains and the index closed at 20,957.81, up 249.10 points or 1.2 per cent. This is its highest closing level since 20,974.79 on November 5.
The CNX Nifty on the National Stock Exchange spurted 80.15 points, or 1.3 per cent, to 6,241.10. The SX40 on the MCX Stock Exchange rose 120.07 points to end at 12,427.14.
Similarly, the rupee soared to a new one-month high of 61.53 against the US dollar and closed at 61.75, a gain of 30 paise against the greenback. It had closed at 62.05 yesterday.
"Market players (especially FIIs) are betting on the opposition party BJP gaining majority in the four states. If that holds true, then on Monday we think the markets will discount the outcome of the general elections to be held in May/June 2014," said Shrikant Chouhan, Head - Technical Research, Kotak Securities.
The state polls results will be announced on December 8 (Sunday).
"We believe that a stable government following the 2014 general elections could remove one key source of uncertainty and support a more sustainable growth uptick," Nomura said, noting the exit polls may differ from the official results.
Bank of America Merrill Lynch said results in line with the exit polls would be positive for the market, which is looking for a strong, stable government after the 2014 polls.
Shrikant Chouhan, Head- Technical Research, Kotak Securities:
Today the market opened up with a huge gap on 6,260 levels, which was beyond the expected uptick on the back of exit polls. It further went on to reach a high of 6,300. But it failed to cross current 52 week high 6,343 and all time high 6,357 that has again paused the sentiment. During the day, capital goods, infra and metal stocks and banks did well, whereas pharmaceuticals and FMCG stocks remained weak. Technology stocks also showed weakness on the back of steep appreciation in INR.
The reason for the appreciation of the rupee is also the same. Market players (especially FIIs) are betting on the opposition party BJP gaining majority in the four states. If that holds true then on Monday we think the markets will discount the outcome of the General Elections to be held in May/June 2014. However, technically currency is poised for a reversal from 61.50 levels. It may be a higher top as compared to 60.93 that it achieved in October. If it starts weakening from here, then we may come across a quick depreciation in the rupee that will challenge 63.90 levels.
Although the markets opened on a higher note, however actual buying is still missing as the rally was sentiment-driven and sellers stayed away. Even short covering added fuel to this rally. However, technically its a corrective up-move to the significant fall that we have come across, after hitting 6,343 on the day of Diwali. If Nifty opens down on Monday then it will accelerate more weakness that may even prove a challenge to 5,900 levels. On the other side if the actual result comes as per expectations, then the market will open above the all-time high of 6,357 and may move to 6,500 on back of fresh buying. To sum it up, markets are likely to go wild on either side. In such type of markets, it is advisable to go for a straddle strategy; buying out-of-money call (6,400) and put options (6,100). Such events should not affect the investors strategy of buying good quality stocks at dips. For traders, our advice is to follow the trend of the market.
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