Sensex, Nifty crack over 3% on poll outcome day; here’s what is weighing on D-Street

After the stellar run on the exit polls outcome on the previous day, Indian equity benchmarks on the poll outcome day traded with heavy cuts, probably giving up all the previous day’s gains. At the last count, Sensex traded with a cut of over 3 per cent or 2,435 points at 74,033, while Nifty shed 3.29 per cent or 764 points at 22,499.15.

"Today's market correction stems from unexpected Lok Sabha Election results, which have disappointed investors. This outcome led to significant sell-offs, with the Nifty 50 and BSE Sensex experiencing substantial declines. The surge in the India VIX index, indicating increased market volatility, underscores investor uncertainty and nervousness," notes Atul Parakh, CEO of Bigul.  As a result, heightened market turbulence is anticipated in the near term as investors reassess their positions in light of this political development, he adds.

Here are the likely triggers that have led to across-the-board sell-off:

Early leads suggest poll outcome not aligned with exit polls:

Early leads for election results 2024 signal a mixed trend and are not aligned with exit polls. Kulbhushan Parashar, Director of Corporate Capital Ventures remarked that the yesterday’s surge doesn't necessarily guarantee a smooth upward trajectory. Investors should be mindful of potential short-term corrections or profit-taking, especially if the election results deviate from market expectations. However, the underlying fundamentals of the Indian economy, coupled with a stable government, could pave the way for continued growth in the long term.

“With the 733 point rally in the Nifty yesterday the market has already discounted a clear win for the NDA and majority on its own for BJP. Only a dramatic change from this expected outcome will cause a major change in the market,” added Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Broad based sell-off:

Broad based sell-off has been triggered in Tuesday’s session with  oil and gas and PSU Bank leading the losses with cuts of up to 6 per cent, followed by metal and realty among others.

Technical factors: "With no visible signs of exhaustion, we will pursue continuation of Nifty’s upsides, which is poised for 23390-440-480 with the first burst, and 24130-700 in a wild case scenario. However, one may begin to be guarded against exhaustion, should Nifty fail to clear 23390-440-480 or on direct fall below 23190, which may expose 22490 or 21800 initially," Anand James, Chief Market Strategist,Geojit Financial Services said.

PSU stocks crack sharply

As early leads for Lok Sabha Elections 2024 suggest a mixed result for the general elections all PSU stocks traded in the red, with GAIL, REC and BEL trading with cuts of up to 7 per cent. Meanwhile, Nifty PSE traded with a drag of over 5 per cent.

Technical factors

"With no visible signs of exhaustion, we will pursue continuation of Nifty’s upsides, which is poised for 23390-440-480 with the first burst, and 24130-700 in a wild case scenario. However, one may begin to be guarded against exhaustion, should Nifty fail to clear 23390-440-480 or on direct fall below 23190, which may expose 22490 or 21800 initially," Anand James, Chief Market Strategist,Geojit Financial Services said. 

This surmise is supported by the fact that despite the sharp decline in VIX, it is still well above 20 suggesting that an outlier is still expected, he added.