A new report has suggested wilder fluctuation in the stock market ahead, with the outcome of the general election less than a fortnight away.
Investors sentiments are already dented as the volatility indicator or the ‘VIX’ on Wednesday logged the highest level since September 2015.
Historically, this nervousness around the general elections has seen the Nifty move over 30 per cent in 2004 and 2009. It was 14 during the last general election when BJP came to power, said the HDFC Securities report.
“Market is likely to be very volatile from May 20 onwards on the outcome of the exit polls. Another round of volatility will be witnessed on the day of counting, May 23,” the report said.
The report projected that if BJP gets more than 272 seats, markets will rise sharply as “markets are not expecting BJP alone to get a clear majority”.
This will see the beaten down stocks to do very well. If an NDA-led BJP government comes to power, markets will react positively “as uncertainty will end”, but a negative response on the result day is to be expected if NDA fails to form the government as it an “unexpected outcome”.
The reports also advised the investors who hold large equity portfolios to hedge them through buying Index Put Options. “However one should understand that hedging is like an Insurance, which comes with some cost,” it added.