Indian equity markets are likely to fall marginally on Monday in the wake of the outcome of the Bihar elections. Market analysts including Hitesh Agarwal, head of research at Reliance Securities and K Sandeep Nayak, executive director and chief executive officer at Centrum Broking expect the market to see a knee-jerk reaction but will soon pick up over the week.
"Market could witness an initial slide of 2-3 per cent," said Agarwal.
But the negative reaction may not last long. Any downside will be limited since markets have already corrected quite much on account of domestic as well as global factors and is already down 4 per cent year to date. Nayak said that after the initial reaction, there will be a phase of recovery and consolidation over the shortened Diwali week.
Analysts said that BJP not winning in Bihar is unlikely to make a significant impact on the reform agenda of the government at the Centre though the same would have been smoother if they had won.
Any fall should be seen as a buying opportunity, say market participants. "Lower seat tally for ruling alliance in the centre can cause a knee jerk reaction and markets can open sharply lower potentially giving an opportunity to take a contrarian bet and go long on the markets," said Jimeet Modi, CEO, SAMCO Securities.
Analysts however said that markets can bounce sharply as India is the only high growth country, which has lagged behind in the current rally across international markets. Pankaj Sharma, Head of Equities Equirus Securities (P) Limited said, “We would expect 2-2.5 per cent correction tomorrow morning but the markets should stabilize by close.”
“We would believe that this is a better outcome for the future of economic reforms if BJP takes this as a lesson that only development could help them win,” Sharma added.
The focus will now shift back to corporate India's performance in September quarter, probability of a US rate hike in December and progress of GST and other pending bills in the winter session of the Parliament.
So far, India Inc's performance in the September quarter has not been encouraging though expectations were already low.
Foreign institutional investors have been selling both in the equity and debt market in November according to data available on NSDL. FIIs have net sold Rs 400 crore in equity in November till date. Their behaviour will be keenly watched ahead of the Fed meeting in December.
However the heartening thing is that domestic institutional investors continue their support with buying. In November, they have bought shares worth Rs 1017.49 crore.