Street Un­likely to See a Surge in Volatil­ity Ahead of UP Re­sults

The Economic Times - - Smart -

preted as a con­tin­ued man­date for de­vel­op­ment pol­i­tics.

The man­ager of a lead­ing do­mes­tic mu­tual fund said on con­di­tion of anonymity that if there is a yawn­ing gap between the win­ner of the UP elec­tion and the BJP, it may be con­sid­ered a di­rect re­sponse to Prime Min­is­ter Naren­dra Modi’s cur­rency re­place­ment ini­tia­tive and pos­si­bly hurt his pop­u­lar­ity, which may com­pel the gov­ern­ment to take pop­ulist mea­sures.

“If the state elec­tion out­come re­veals a big protest vote against the gov­ern­ment due to de­mon­eti­sa­tion, it will bode poorly for them,” said Lon­don-based Dehn. He added that an un­favourable out­come for the BJP will not lead to a big sell­off but def­i­nitely limit the up­side.

Apart from im­plied volatil­ity, cash lev­els of large do­mes­tic funds have been in the 3-5% range, which is the av­er­age. The cash po­si­tion of the top 10 mid­cap and large-cap funds in­di­cates that there is no sign of cau­tious­ness ahead of the UP elec­tion re­sults. The cash po­si­tions stood at 5.24% and 3.46%, re­spec­tively, in Jan­uary com­pared with the last one-year av­er­age of 5.73% and 4.71%, re­spec­tively.

In ad­di­tion, bench­mark bond yields are not in an up­ward trend. This sug­gests that the mar­ket per­ceives low volatil­ity in the near term.

“If the BJP ends up do­ing well in th­ese polls, mar­ket sen­ti­ment will stay op­ti­mistic,” CLSA’s In­dia Strate­gist Ma­hesh Nan­durkar said in a note to clients on Fri­day.

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