Stock Market Investors Banking on Strong BJP Victory

Investors Grow Cautiously Bullish Amid Optimism Over BJP Election Victory; F&O Data Insights

As India approaches the election results expected next week, D-Street has adopted a bullish stance tempered with caution. This sentiment is evident from the significant short covering and long buildup in index futures, accompanied by increased volatility.

Market Performance and Investor Sentiment

The NSE Nifty 50 index has seen substantial short covering in the futures market, followed by long additions, according to Arun Mantri of Mantri Finmart. “Foreign Institutional Investors (FIIs) were net short in mid-May, but have now turned net long,” Mantri stated, highlighting a bullish short-term bias.

The benchmark indices have recently posted rapid gains, with both Sensex and Nifty reaching new all-time highs above 76,000 and 23,000, respectively. This surge reflects growing investor confidence in Prime Minister Narendra Modi’s BJP-NDA securing a comfortable majority in the ongoing general elections.

Market Optimism and FII Activity

Earlier in May, the market displayed caution due to concerns about low voter turnout and election result uncertainties. Nifty had dropped to a swing low of 21,821 on May 13. However, sentiment shifted positively as voting progressed. By May 15, the net long/short ratio of index futures for FIIs had fallen to 26.23 percent but rebounded to 51 percent over the next eight trading sessions, according to Sudeep Shah of SBICAP Securities. “This indicates that FIIs have covered their short positions,” Shah explained.

This short covering was primarily driven by large-cap stocks such as Reliance Industries, HDFC Bank, Axis Bank, and Hindustan Unilever.

Technical Indicators and Market Outlook

Other technical indicators also support the positive sentiment. Nifty futures are trading above both short and long-term moving averages, signaling a bullish trend. Since May 15, Nifty futures have gained over 3 percent, with cumulative open interest (OI) for the current, next, and far series increasing by 13 percent. This long buildup indicates a positive market stance, according to Shah.

Key Levels and Cautionary Signals

Open interest data reveals significant call options interest at the 23,000 and 23,200 strikes, while put options interest is notable at the 22,900 and 22,800 strikes. “This suggests immediate support for the index at the 22,700-22,600 range, with a crucial hurdle at the 23,200-23,300 range,” said Shah.

Despite these bullish indicators, caution persists due to the elevated volatility index (India VIX), which remains above the 25 mark. “The high implied volatility (IV) in the options space, indicated by the elevated India VIX, reflects ongoing market uncertainty,” Mantri noted.

Shah added that the volatility index could potentially rise to 27 or even 29 in the coming sessions. In this highly volatile environment, Shah recommends a conservative approach, advising investors to avoid excessive leverage and maintain strict stop-loss orders.

Overall, while optimism about a BJP election victory fuels bullish sentiments, investors remain cautiously optimistic amid heightened market volatility.