The Hindu Business Line : Investors may play waiting game till a Govt is formed

The players, who had pegged their strategies on a decisive election result and formation of a stable coalition Government, would like to distribute their holdings fast on slightest indication of developments otherwise. This lends a possibility of sudden spurt in activity pronounced by volatility and of a reversal in short-term trend.

F&O activism

Derivatives segment activity may dominate the overall proceedings, in that case.

Data suggests that this year’s recovery so far was fuelled a little more by activities on the derivatives front than last year. The share of derivatives trading in the total turnover has gone up by five percentage points, from 2008 average of 72 per cent to 77 per cent till now in 2009, according to a study by SMC Capital.

Investment advisors indicate that during the recovery process, some stocks had not been valued in sync with their fundamentals. After the fourth quarter results, value reconciliation has been part of the consolidation process of the current market.

Much of the current activities are through cheaper and indirect routes, such as futures, or participatory notes. Justifiably, strategies are more defensive than aggressive.

Though the global economic scenario is relatively steadier than what it was in the beginning of the year, before elections results and the onset of monsoon, investors in Indian equities are likely to pedal softly.

Some of the local investors have increased their cash holdings recently. A section of high net-worth individuals were, however, buyers until recently at higher levels.

Churning of portfolios

According to market intelligence, certain active FIIs have churned their portfolios and booked portion of the profits before withholding decision for the long-term in the past few weeks. Indian equities have gone through a bout of rating revision in the past month and the next round weight addition, if at all, may start from next month.

For Dalal Street, performance of a Government is as important as performance of corporates and monsoon (which kick-starts early June). Prognosis over the ensuing big event of Government formation now rules the investors’ mind. As it has long-term implications, long-term investors prefer to wait till June. It is anticipated that triggers for fresh allocations would be available then.

Some strategists feel that the time between announcement of poll results and formation of Government could be best time to buy.

According to a Goldman Sachs note, economic activity increased immediately after five elections out of past seven since 1984. On each of those five occasions, a coalition perceived to be stable had come to power.

The stock market declined during the election period in four out of the five elections since 1980; directionally, global markets had had a greater impact on the stock market than elections in that odd year. It also observed that volatility in the rupee declined post-elections after every general elections since 1989.

(Responses may be sent to jayanta_mallick@thehindu.co.in)

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