Sensex at 75k: Why the bulls are unusually calm on the eve of an election
It’s unusual for stockmarket indices to hit new highs on the eve of a general election, as they are doing now. Normally we would expect plenty of volatility and price corrections, with nervous traders exiting the market and sitting on the fence. But this time around the market seems to be ignoring the political situation.
The VIX, the volatility index that tracks option premiums, is at its lowest level so far this year. This is another sign traders aren’t expecting large, sudden price swings. Trading volumes are good, which is a sign of wide participation.
Prices are up across a wide variety of stocks. Retail investments continue to pour into mutual funds. Foreign portfolio investors continue to be consistent buyers of equity and rupee debt.
There are several reasons for this “business as usual" attitude. One is simply that the election has a long runway. The result will only be known in early June.
There will probably be nervousness and corrections in May and June, as the seven phases play out. But if a week is a long time in politics, seven weeks is a very long time in stock markets. Apart from this, the smart money believes financial markets will remain healthy, regardless of election results.
Most investors expect the BJP to return for a third term. But even the few who may be bracing for a Black Swan event and change in government expect the economic momentum to remain undisturbed. Even the NDA-sceptics who have read the Congress manifesto believe there will be continuity in economic policy since the opposition alliance's agenda includes no radical changes on this front.
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