How to play markets in the run up to election results in May 2014

The month of May is likely to remain volatile and wild swings can be expected on May 16 – the day of Lok Sabha Election results, say analysts and brokers who are also seeking permission to extend trading hours on the same day to shield them from volatility.

Brokers have sought permission from the Securities & Exchange Board of India ( Sebi) to extend trading hours on the stock exchanges on May 16 – the day of Lok Sabha election results, said an ET report.

They have also sought approval to keep the markets open on May 17, a Saturday, a day when stock markets are usually shut, added the report. Brokers want more time to deal with the possible volatility around the election results.

In the last 2 election years, 2004 & 2009, the stock market actually gained in the months immediately after the results. So it is best not viewed as a normal year (2014).
It will be important to concentrate on the unfolding trend in front of us both politically as well as economically, say analysts.

A large part of analysis is based on scenario assessment and derived probabilities. And at this point in time the most probable scenario is that NDA will form the next government based on most opinion polls. Investors should use any dips to increase their equity allocations or exposure to equities.

“Each dip or correction from here on is an opportunity to enter, accumulate or add to a stock portfolio. But if risk minimisation is the most dominant factor then any sizable buying can be put off till after May 16,” said Tarun Dang, Managing Partner, Trend-Wise Capital Management.

“We are in the early stages of a fresh wave upwards in a bull market. We will concentrate on sectors that are known to lead the early phases on a bull market,” he added.

Dang is of the view that Capital goods, Banking, Energy and Infrastructure look very promising and one can look at frontline stocks within these sectors for their long term portfolios.

At this point in time we are not very keen on FMCG or IT but that does not mean that these will suffer. Just that we see better promise in the sectors mentioned earlier, he concludes.

Correction in markets is always healthy sign especially after steep gains in short time. It gives an opportunity to investors who have got left behind can come and ride the tide.

“Investors must ensure that if their portfolios haven’t risen with the rise in markets, then there is something wrong with stock selections. It is always better to sell those stocks and utilize the proceeds for building new portfolio,” said D K Aggarwal, CMD, SMC Investments and Advisors limited.

“It is better to be in the capital goods, banks, thoroughly researched mid cap and small cap stocks,” he added.

According to analysts, investors should reduce their positions in high beta stocks which have already gone up quite significantly on expectations of NDA led government at the Centre. And it looks like most of it is already factored in most of these stocks and further rise looks limited.

“In my view one could reduce the weight of high beta stocks, which have already gone up in last two months rally, and keep the defensive kind of stocks in the portfolio,” said Tushar Pendharkar, Equity Strategist, Right Horizons Financial Services.