Markets opening: Sensex may see knee-jerk fall early Monday, but analysts expect consolidation ahead

Key domestic share indices are likely to open with a negative gap on Monday in a knee-jerk reaction to the NDA’s debacle in the Bihar state elections, but stock market analysts suggest the results were more or less discounted by the markets over the past week or so.

In the run-up to the state election results, the benchmark Sensex ended lower in nine out of the last ten sessions, tumbling 1,200 points in as many sessions.

On Friday, the 30-share BSE S&P Sensex ended 39 points lower at 26,265.24, while the 50-stock CNX Nifty closed 1.15 point lower at 7,954.30.

“Our short-term view for the market is negative as there has been no stellar economic performance from the government front so far. The Bihar elections will not have any major bearing on the markets, but several other key indicators such as corporate earnings are not firing at all in the last last 3-4 quarters. We don’t see much changing on the earnings front in the next few quarters,” said Saurabh Mukherjea, head of equities at Ambit Capital.

However, G Chokkalingam, founder & managing director of Equinomics Research & Advisory says economic fundamentals will soon come to the fore, and markets will be on a consolidation phase in the next few sessions. According to him, stock markets always look for big picture in terms of economic performance and reform process, and the outcome of state results hardly matter for the markets are not put to test on the basis of state election results.

“All the economic indicators are showing positive signs. Strong indirect tax collections, rising FDI inflows, sound execise duty mop up and margin expansion due to lower crude price benefit point towards economic revival, which will reflect into the markets in the near-to-short term,” said Chokkalingam.

On the US Fed’s likely rate hike in December having impact on the markets, he said the increase in policy rates is more or less priced in the markets, and the hike will be construed as an improving scenario for global economy, which has steadily slipping towards stagflation.

Accordig to Dipen Shah, senior vice president at Kotak Securities, equity markets may witness sharp correction at the start of the trading session on Monday due to the disappointing performance of NDA in Bihar elections, but global cues will soon dictate the trend as the focus will shift towards Fed’s rate hike decision in December and economic slowdown issues in China and European countries.

“The rate hike talk have been going around for last five months, and our markets have fallen in tandem with the trend seen in other global markets. Now, that the Fed in most probability will hike rates in December, the fear scenario will subside in the near term and markets may stabilise at a particular level. We don’t expect any major fall in the near term,” said Shah.