India VIX at 4-yr high, brace for wild swings on May 23

Bulls showed strength just a day ahead of the election result scheduled on May 23. The S&P BSE Sensex rallied more than 100 points while Nifty50 held on to 11,700.

Investors should brace for some volatility on May 23 as results from various states will start coming out in the morning itself. The counting will begin at 8 o’clock in the morning, and the trends are likely to start coming in by the afternoon.

India VIX, which is also known as the fear gauge or volatility index shot up to hit a 4-year high intraday and closed 7.38 percent up at 27.54 ob May 22. The index spiked to 30.18 in intraday trade.

“Volatility index shot to four year high just ahead of the big event. Valuation is expensive depicting the risk of the market to handle such event risk, long-term investors can stay cautious,” Vinod Nair, Head of Research, Geojit Financial Services Ltd told Moneycontrol.

“If the actual outcome is in line with the exit poll, it will be a relief to the market in the short term. Formation of a government with a strong mandate will support the undercurrent by foreign inflows,” he said.

In terms of sectors, the S&P BSE Banking index rose 0.89 percent, followed by the S&P BSE Capital Goods index that gained 0.87 percent and the S&P BSE Oil & Gas index that was up 0.67 percent.

Some profit taking was seen in the S&P BSE FMCG index that was down 0.84 percent, followed by the S&P BSE Consumer Durable index that was down 0.64 percent, and the S&P BSE IT index that slipped 0.61 percent.

What should investors do now?

If election results on May 23 are not in line with the exit polls, experts are projecting the indices to swing wildly in the range of ±10 percent from the current level.

On the other hand, if election results are in line with the exit polls, upsides will be capped.

“History suggests that if results are in line with exit polls, market moves by 1.5-2 percent post the final results; however, if they are not in line and there is a huge deviation in the results, markets tend to swing wildly to the extent of ±10 percent,” Edelweiss Professional Investor Research said in a note.

“Option prices are also expecting a volatile expiry hence to hedge your portfolio from this volatility and be safeguarded from the event risk, we advise to hedge your portfolios by buying Puts of the June expiry,” Edelweiss said.

The brokerage firm advises investors to buy 11,500 CE of June 27 expiry at Rs 235.

Stocks in news:

DHFL fell more than 9 percent after the company announced that it has stopped accepting fresh public deposits and renewals of existing deposits with immediate effect.

Shares of Jet Airways rose 5 percent after media reports suggested that Etihad Airways, along with the Hinduja Group, has joined hands with AdiGro Aviation and Jet Airways founder Naresh Goyal to revive the Indian airline, which suspended operations on April 17.

Shares of Alkali Metals rose 20 percent after the company received EIR from USFDA.

Jindal Steel and Power declined 7 after the company reported a net loss of Rs 2,713.34 crore for the quarter ended March 2019.

Shares of KEI Industries added 6 percent after it reported a 21 percent jump in net profit in the quarter ended March 2019 at Rs 60 crore, compared to Rs 49.5 crore in the year-ago period.

Global update

European markets traded cautiously as investors monitor the increasing involvement of technology giants in the US-China trade war. The pan-European STOXX 600 traded around the flatline in the morning session,

Markets in Asia ended mixed as trade tensions continued to linger between the US and China.

Shares in mainland China edged down on the day, with the Shanghai composite declining 0.49 percent to 2,891.70 and the Shenzhen component falling 0.51 percent to 9,041.22.

Hong Kong’s Hang Seng index rose about 0.2 percent, as of its final hour of trading. Nikkei 225 in Japan rose fractionally to close at 21,283.37. Kospi recovered from its earlier slip to close 0.18 percent higher at 2,064.86.

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