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