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Possible outcome of elections, to be announced this weekend, will dominate the minds of punters this week. A feel of elections would be available mid-week when the final phase of voting would complete on Wednesday.

Significant bets are there on a fractured mandate. Market has so far ignored the contrary signals. If either of the two major pre-poll alliances cannot gather a simple majority and post-poll exercises ensue in new combinations to form a Government then sentiment would obviously turn negative.

Market may correct in such a situation. But the degree of correction would depend on how short the UPA or NDA coalitions are and how a new combination is arrived at. Markets’ concerns over continuation of stable economic policies and perception of the emerging combinations would dictate market’s movement in the short-term.

This week an early sense of the elections results is likely to lead the local traders and investors to tread with caution.

Already domestic financial institutions have shown a general propensity to book profits and stay back with substantial cash. But a section of retail investors, including high net-worth individuals, has raised equity exposures in the past few weeks. Some of the foreign institutional investors have also joined the buy-bandwagon.

A large number of these local and global investors have no long-term view and have been riding the momentum. They are bound to feel awkward if the tide turns.

According to market intelligence, however, strategies differ widely. For some, this is an opportunity to get more entrenched into equities and take a medium to long-term risk to reap decent profits. For others, if another dip is on the cards, then it is worth waiting a few weeks.

This set appears to be willing to enter at a higher price than hazarding a risk now.

Though broader directional call may emerge some time early June after the formation of the new Government, this week market may move sideways on contrary pushes and pulls.

Market advisors suggest that overseas and domestic investors who have enlarged their commitments in recent weeks would like to continue with their stance until the weekend, albeit with lesser aggression. But nothing can be taken for granted. Large-scale violence or serious indication of an unexpected poll outcome may prompt them to reduce exposure during the week.

Those who have not been encouraged by the upward price actions of the past few weeks are, however, unlikely to enter the market in a hurry.

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

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