Sharp fall unlikely in market on adverse poll results. Here’s why

New Delhi: The NSE benchmark Nifty has rallied nearly 10% after hitting a low of 10,585.65 on February 19 on expectations of the return of the Bharatiya Janata Party-led NDA coming to power again in the forthcoming general elections that start from tomorrow. The rally gained momentum in March after the release of the opinion polls, which predicted a win for the saffron party. The Nifty hit a record high of 11,761 on April 3, surpassing its previous high of 11,760.20 hit in August last year.

The general elections which will be held in seven phases starting tomorrow will continue till May 19 and the counting will happen on May 23. Analysts have been saying that the market rally, which started on the expectation of Prime Minister Narendra Modi coming back to power again, may reverse if he does not come back as PM again.

But recent derivative data suggest a big fall is unlikely in the market in case of any adverse result (if BJP does not come to power again) in the elections. According to a report in the Economic Times, traders have trimmed their bets on Nifty futures and open interest or outstanding position in the Nifty future have fallen to 1.6 crore, the lowest level in nearly 28 months. The lower open interest in Nifty indicates big fall is unlikely in Nifty in the near future.

“The open interest is near 15 million (1.5 crore), which is half of what it was when the index had hit record high last year. The scenario of index falling is less likely as there is no liquidation fear. There is little leverage in the Nifty,” Amit Gupta, head of derivatives at ICICIdirect told ET adding that the low open interest means the index is less likely to fall.

Despite the recent rally in markets, traders have been cautious and are not leveraging much, said traders.

“Open interest is light from the last two series for two main reasons. One reason is the upcoming election outcome,” the business daily quoted Chandan Taparia, derivative analyst at Motilal Oswal as saying. “People are not taking significant positions also because the index has already moved up by over 1,200 points from the lows in the last two months.”