Weekly Wrap: Investors Brace For State Election Results

Indian equity benchmarks declined as investors reduced their positions ahead of the outcome of state elections that may set the tone for general elections in 2019.

The S&P BSE Sensex fell 1.44 percent and the NSE Nifty 50 Index dropped 1.68 percent a week after it rose to a four-week high.

“Investors are lightening their positions ahead of state election results,” AK Prabhakar, head of research at IDBI Capital Market, told BloombergQuint over the phone.

“If the election result goes against the market expectation, the reaction can then be violent... hence many leveraged and short-term traders have zeroed down on their positions and that's why we saw heightened volatility this week,” Prabhakar said.

There's a 75 percent probability that Nifty is likely to fall further, Anil Manghnani of Modern Shares and Stock Brokers told BloombergQuint. However, if the index rises, there's a 25 percent chance it may test its recent high of 10,940 or at best go up to 11,100, Manghnani said.

On the downside, support for Nifty would be around 9,900-9,875 and if that breaks 9,200 can also be tested, he said, adding that it will happen in steps and not overnight.

Top Stock Moves Of The Week

• Hindustan Unilever was the top gainer of the week, rising 4 percent after Unilever Plc agreed to take over GlaxoSmithKline Plc’s nutrition business and then merge their Indian units in a deal worth £3.1 billion or $3.8 billion.
• Kotak Mahindra Bank rose 3.7 percent after CNBC-TV18 reported, quoting unidentified people, that Warren Buffett’s Berkshire Hathaway Inc. is in talks to buy a 10 percent stake in the private-sector lender. However, in response to queries from stock exchanges, Kotak Mahindra Bank said it was unaware of such plans.
• On the flipside, Sun Pharma slumped 16.5 percent after a PTI report suggested that Securities and Exchange Board of India may reopen an insider trading case against the company.
• Tata Motors declined 5.75 percent after S&P Global Ratings cut Tata Motors’s long-term rating deeper into junk on Tuesday, the second downgrade for the Indian automaker in five months, citing headwinds for Jaguar Land Rover in some of its key markets. Leverage for the Mumbai-based company may deteriorate over the next 12 to 18 months due to the weaker-than-expected performance of the European subsidiary, S&P said.

All sectoral gauges barring the Nifty IT index ended lower led by the Nifty Pharma Index's 6.4 percent fall.

The rupee halted its longest weekly gaining streak since January taking cues from equity markets which came under selling pressure.

The local unit fell 1.7 percent, or 122 paise, to 70.81 against the greenback making it the worst Asian currency this week.

Big Talking Points This Week

• Unilever buys GSK Consumer Healthcare, to merge it with HUL.
• Mr Shanghvi, your secret cost Sun Pharma’s investors Rs 11,000 crore in two days.
• IL&FS top brass gained over Rs 440 crore from employee trust: SFIO.
• Yes Bank looks to blame rival for bad press.
• Jaguar Land Rover key after Tata Motors' second rating cut.
• India monetary policy: Status quo on interest rate and stance.
• ‘Please take’ the money back, fugitive Mallya tells banks.