Sensex fell by 376 points
This is a story of expectations, profits, and the big ‘game’ that happens in the stock market after every election. The results of Bihar assembly elections have once again raised this question. Exit polls came, NDA’s big victory was predicted, the market jumped with joy. On Wednesday, Sensex jumped 750 points and Nifty jumped 230 points. There were smiles on the faces of investors. But, when the results on Friday came as per the exit poll claims and the NDA majority figure was seen to be far ahead of 122 (more than 200 seats), instead of celebrating, the market took a dive.
Around 2 pm, the Sensex was trading 376 points or 0.44% lower at 84,102.96. Nifty was trading at 25,771.40, down 110.71 points or 0.42%. Shares of big companies like Infosys, Eicher Motors and Tata Steel fell by 3% on Nifty.
i.e. the news on which Market He was dancing two days ago, why did he stumble when the same news became confirmed? Does the stock market also play on the excitement before it is ‘confirmed’? The question that arises in the mind of the common investor is what is the reason behind this contradiction. Experts say that the direct answer is profit booking and market wisdom. Let us try to understand it in detail.
Why does the market give a shock on the day of results?
The stock market does not love any one party, but ‘stable and decisive leadership’. Whenever the market feels that a strong, stable government is going to be formed which will carry forward economic reforms, it already starts celebrating. This was the reason that as soon as the exit polls predicted a landslide victory for the NDA, the market gained momentum.
But this story of market taking a dive on the day of results is not new. If we look at the 2010 Bihar elections, when the NDA under the leadership of Nitish Kumar had registered a massive victory, there was no significant impact on the market because at that time there was a global recession and investors were more focused on the recovery of the American market (Wall Street) than on domestic policies.
Whereas, the story of 2015 was completely different. There was a Modi government at the center and this election was being seen as a test of its popularity. The results came as per the polls, yet the market was shocked and the Sensex fell by 391 points. Even though NDA won again in the 2020 elections, the market fell. This trend clearly shows that the market is often in a ‘correction’ mood on the day of results.
‘Profit Booking’ game
Actually, behind all this turmoil there is a big game of ‘profit booking’. Understand it like this.
- Buying on expectations: Big and intelligent investors already have an idea of which party is going to win. They consider the strong claims of exit polls as ‘confirmed news’. They know that the market likes ‘stability’, so they start buying on a large scale immediately after the exit polls. This is the reason why there is a huge jump in Sensex and Nifty as soon as the exit polls come.
- Selling when the news is confirmed: When the official results come and the exit poll predictions prove to be true, these same investors now start booking their profits. They had bought shares at a low price and are now selling them at a high price. Due to selling of a large number of shares simultaneously, there is a sudden decline in the market, due to which the common investor gets nervous.
Last year’s example was even more shocking. Exit polls were claiming a strong government, but when the results came and BJP remained away from the majority mark, the government was still being formed, but the market got badly agitated. Nifty plunged by 10% in a single day, due to which investors lost millions. In this election too, there was tremendous momentum on the next day of exit polls.
Understand the reasons for the market fall today
- There are many concrete reasons behind the big decline that is being seen in the stock market today. The biggest reason is the results of Bihar elections, on which the market’s eyes are fixed. Investors have become very cautious before the results, due to which the volatility in the market has increased. VK Vijayakumar of Geojit Financial Services believes that the impact of the election results will be short-term only, while in the long term, the market movement will be decided by the earnings of the companies and the GDP growth of the country.
- Apart from this, poor performance of global markets is also spoiling the mood of the Indian market. On Thursday, American stock markets closed with a huge fall. The Nasdaq fell 2.3% and the S&P 500 and Dow Jones indexes fell about 1.7%. Tremendous selling was seen in the shares of big tech companies like Nvidia. In fact, the recent statements of the Federal Reserve Bank officials have further weakened the expectation of interest rate reduction in December, which had a direct impact on the shares of IT companies. Asian markets were also on the same path, where indices of South Korea, Japan and Hong Kong were also trading in the red.
- Another matter of concern is the rise in crude oil prices. In the international market, the price of Brent crude oil increased by 2.71% to $60.28 per barrel on Friday. This is a negative sign for a big oil purchasing country like India, because due to oil becoming expensive, the import bill of the country increases and at the same time the pressure on inflation also increases.
- Amidst all this, foreign institutional investors (FIIs) are continuously selling. They sold shares worth Rs 383.68 crore on Thursday and have been continuously withdrawing money from the market for the last four days, which has put pressure on market sentiment.
- India VIX index, indicating market instability, has also increased by more than 1% to reach 12.30. This increase in VIX shows that there may be a lot of volatility in the market in the coming time, due to which traders are adopting a cautious attitude.