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BJP’s defeat in West Bengal, TN may have a negative impact on market, but larger trend remains intact –

After rallying by about 2 percent for the week ended April 30, Indian markets could see a knee-jerk reaction to the outcome of the assembly elections as well as the extension of lockdown when trading resumes on Monday.

The ruling party, BJP managed to get a win in Assam and in the Union Territory of Puducherry while it lost in West Bengal, Tamil Nadu as well as Kerala.

“The market will be disappointed with BJP’s inability to breach TMC’s citadel, it will take comfort that the BJP has been able to retain power in Assam by overcoming the oft-repeated assertion of its critics that it fares poorly in defending states where it is in power,” Ajay Bodke, Independent market analyst told Moneycontrol.

“The impact of these wins by the TMC and DMK on the constitution of the Rajya Sabha will be closely watched as the NDA needs to command a majority there to pass crucial legislative bills to accelerate economic reforms and BJP’s nationalistic agenda in social & cultural spheres,” he said.

The index witnessed a knee-jerk reaction on Friday where Sensex plunged by over 900 points while the Nifty50 broke below 50-Days SMA. Although state election results do not have any material impact on markets but it will be sentiment negative.

“As such state elections do not have any impact on stocks. A BJP win in West Bengal would have been mildly sentiment positive and street could have factored more reforms but a loss in the key state does not change the trajectory of indices,” Dipan Mehta, Director at Elixir Equities Pvt Ltd told Moneycontrol.

“The mood and mind space is entirely on COVID and with every passing day, it is becoming more and more apparent that the second wave will impact corporate profits and investor sentiment. Beyond the first few minutes, the assembly elections will have no impact,” he said.

Last week, Fitch Ratings said the resurgence of COVID-19 infections may delay India’s economic recovery, but won’t derail it, as it kept the sovereign rating unchanged at ‘BBB-‘ with a negative outlook.

New restrictions which were imposed by Delhi and Haryana governments could extend the economic recovery process in the short term, but experts feel that any knee-jerk reaction could be used as a buying opportunity as long as Nifty holds on to 14151-14300 levels.

The only positive news that could support the sentiment is GST collection. The gross Goods and Services Tax  (GST) revenue collection for April, 2021 hit yet another peak of Rs 1,41,384 crore, as per the press note released by the government. Collections in April 2021 have surpassed even those of March.

“The election outcome in five states will be of sentimental impact, which would run for a day or next couple of days, but ultimately the markets will factor-in the pandemic & mitigate actions and impact on the economic activities,” Rajnath Yadav, Research Analyst at Choice Broking said.

“Overall considering the election as a non-event, the record high GST number shared on Saturday can be positive for the market. But accounting for lower GST due to the second wave lockdown, the market will take it neutral to positive,” he added.

Technical Take:

Nifty50 failed to hold on to 15000 which it reclaimed in the week gone by, but closed with gains of about 2 percent. Any dips towards 14500-14300-14200 could be good buying opportunities.

History suggests that every major dip was bought into. Hence, traders will be better off remaining stock specific and buying quality stocks on dips.

The index has formed a higher base above 100-day EMA coincided with a lower band of channelised move of the past two month’s correction. “Going ahead, we expect the index to resolve higher and gradually head towards 15400 in the coming month,” Dharmesh Shah, Head – Technical ICICIdirect said.

“Since March 2020, the Nifty has maintained the rhythm of not correcting more than 9% and time-wise not correcting for more than two to three consecutive weeks. Past two month’s 8% corrective move hauled the Nifty in the vicinity of the lower band of the falling channel,” he said.

Shah further added that the current elevated buying demand confirms that the aforementioned rhythm has been maintained, hence, any dip from here can be capitalised to accumulate quality large and mid-caps as we expect stock-specific action to continue amid the ongoing Q4FY21 result season.

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