MUMBAI: The stock market could extend losses on Monday after falling 2 per cent on Friday as Bharatiya Janata Party’s loss in some key state elections is expected to weigh on sentiment, already hit by record Covid cases across the country. Market participants worry that the political setback could prompt BJP at the centre to go slow on economic reforms. But analysts maintain investors must buy if the market weakens further as a reversal in infections could trigger a rally in equities.
In the unofficial grey market, the Nifty was down 450 points on Sunday noon. Analysts said 2-3 per cent decline in the Nifty is likely on Monday if sentiment in the grey market is to go by.
“As it is the situation is weak for markets and this could lead to deeper cuts,” said independent market expert Sandip Sabharwal. Out of the four state elections — West Bengal, Assam, Tamil Nadu and Kerala, Assam is the only state where BJP is coming to power.
Ending the four-day winning run, the Nifty on Friday dropped 263.80 points, or 1.8 per cent, to close at 14,631.10 ahead of the election results on Sunday.
Some analysts said the fall on Friday has already baked in the election results.
“It was partly factored into the fall we saw on Friday. At the margin it is negative, especially when the market sentiment is wobbly,” said Piyush Garg, chief investment officer at ICICI Securities.
The head of institutional equities at a Mumbai-based brokerage firm said bookies in Kolkata were working with a 80 per cent probability that the BJP will win.
“Market was discounting nothing. A BJP win would have enhanced political stability from an FPI point of view but the market reaction to this will be neutral,” said the institutional equities head.
Money managers said once the disappointment over BJP’s show in the state elections subsides, market will start focussing once again on the impact of pandemic on business activity.
“While the elections are a setback and may have a negative impact, it’s the bigger picture of Covid which the market will focus on. The market cannot look through the surging cases until there is a ramp-up of vaccinations,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.
India’s daily Covid cases passed the four-lakh-mark for the first time on Saturday and more states such as Haryana and Odisha decided to implement lockdown to curb the spread of the pandemic.
Analysts are advising investors to buy on further weakness.
“Investors are advised to utilise this volatility as a buying opportunity with stop-loss placed at 14,150 for longs,” said Rahul Sharma, head, technical and derivatives research,
Sharma is bullish on pharma stocks mainly Cipla as the technical outlook favours heavyweights in the sector.
Abhilash Pagaria, senior manager, Edelweiss Alternative Research, recommends metal companies mainly
and SAIL. “Metals has a room for 6-7 per cent surge because global steel prices are pacing upwards,” he said.