The traders on Dalal Street on Tuesday witnessed tremendous leap following multiple exit poll predictions which indicated that the Narendra Modi-led NDA government will return to power. The stock market was optimistic about the outcome presented by exit polls, but brokerages have asked all share market investors to trade cautiously till the final Lok Sabha elections are declared.
Here are some reasons, why investors should proceed with caution while trading-
Instability in Market
At present, as the exit polls are just indicators of the final Lok Sabha elections outcome, there is a lot of instability in the market. Many brokerage firms predict the stock market to act volatile on Wednesday and Thursday as well. and asked traders to not get tempted and buy stocks at a bargain when they dip. Traders have been asked to not get tempted and buy stocks at a bargain when they dip and also approach before the market comes to grip with the final election results. The volatility will be high in this period.
Profit taking is defined as the act of selling a security/equity in order to lock gains after it has risen appreciably. So, when there is an unexpected decline in a particular stock or equity index, it is often attributed to many investors booking profits. Many analysts explained that over-the-top market reaction to the exit polls led to profit booking on Tuesday and it is expected to rise till the final results are out on Thursday.
Economic Resting phase
While brokerages are not worried about the knee-jerk reaction expected after the final results are declared, they are concerned about a slowdown in economic growth, triggered by weak company earnings for the last quarter and weakening macroeconomic data. Even if the NDA government returns to power, analysts do not expect a spike in economic activity as the government would initially focus on fiscal consolidation.
Other global factors
When comes to stocks, no one can ignore the global market. As tension emanating from the ongoing trade tussle between the US and China has added to volatility observed in global stock markets including India. Many Indian IT and Pharma stocks are currently suffering due to a spurt in global trade tensions. The winning of the NDA government may accelerate the tussle as China will not be welcoming for the repeat in the Indian government.