US Elections to dominate markets: Increased volatility to continue

Markets were under pressure last week and lost on four of the five trading sessions. BSESESENSEX lost 1,071.43 points or 2.63% to close at 39,614.07 points. NIFTY lost 287.95 points or 2.41% to close at 11,642.40 points. The broader market saw BSE100, BSE200 and BSE500 lose 2.27%, 2.11% and 2.09% respectively. BSEMIDCAP was down 0.48% while BSESMALLCAP lost 1.63%. Intra-day volatility had increased significantly on expected lines.

A case in point is on Friday the 30th of October which was the first trading day of the new November series which saw an intra-day movement of 747 points while the net loss for the day was a mere 135 points.

The Indian Rupee lost 48 paisa or 0.65% to close at Rs 74.10 to the US Dollar. Dow Jones was under tremendous pressure and lost a whopping 1,833.97 points or 6.47% to close at 26,501.60 points. Dow had losses of 650 points, 222 points, 943 points, a gain of 139 points and a loss of 158 points on the five trading sessions last week.

US elections will be held on Tuesday the 3rd of November and there is a distinct possibility that we may not have a potential winner or new US President till nine days after. If no presidential nominee gets past 270 electoral votes, then we would have to wait for the counting from two states, Pennsylvania and North Carolina where the supreme court has allowed postal ballots to be counted till nine days after the election date, provided they bear the postal mark of election date or earlier. This could mean that the election outcome could get delayed and cause huge uncertainty for a prolonged period of time. The two states have 20 and 15 votes respectively.

There seems to be complete confusion on the likely outcome of the US elections and people are pointing to all sorts of combinations and permutations. In the 2016 elections where Hilary had won on the popular vote garnering about 3 million more votes than Trump, she lost on the electoral votes. This time around again a similar possibility exists. Further there is confusion about the poll forecast where all sorts of theories are being propounded about the veracity of the pollsters and their accuracy. The fact of the matter remains that with the elections likely to be a close affair and in case it goes down to the wire with no one past the 270 mark on Wednesday morning in the United States, we would see great uncertainty in Dow Jones and therefore global markets. In case we have a winner, markets would settle down in a short period of time. In either case volatility and actually heightened volatility would be the order of the day.

October futures expired on a weak note and registered losses in the final week. As mentioned last week that one has not seen four-digit gains on NIFTY in expiry, the same did happen. NIFTY expired with gains of 865.25 points or 8.01% to close at 11,670.80 points. Readers would recall that we had begun the expiry week with gains of 1,124.80 points.

On the covid-19 front the world saw 4,63,94,214 patients with 12,00,405 deaths and 3,34,87,913 patients having recovered. In India we have had 81,84,082 patients with 1,22,149 deaths and 74,91,513 people having recovered. Compared to the previous week, the world saw 34,47,768 new patients, 45,543 deaths and 18,14,907 people recovering. The recovery rate is far lower than the number of new patients and this is probably hinting at a second round of virus outbreak in a number of countries. In India the week saw 3,19,271 new patients, 3,582 deaths and 4,13,390 patients recovering.

The week ahead would be volatile without doubt with US elections as close as can be. It maybe out of place to try and predict the outcome of a subject where I am certainly not an authority. It would be better to share some thoughts on ground reality instead. The automobile sector has been through a lot of pain in recent quarters but seems to have recovered from the pain. Demand for 2 wheelers and entry level cars has increased significantly as people get back to work after the extended lockdown on account of covid-19. With transportation difficult and risk of covid-19 existing, more and more people are opting to have transport of their own. This has created demand from a new segment of society and this would help the industry for a minimum of two to three quarters going forward. This augurs well for industry and would help in reviving the economy as well. As an interesting sidenote, real estate sales in Mumbai seem to have picked up and sales in October were significantly higher than a year ago number as well as that recorded in January 2020. This takes into account the festival sales that are witnessed in this period. October 2020 sales were at 7,929 units against 5,811 a year ago and 6,150 units in January 2020. Considering the fact that GST collection has already crossed the 95,000 cr level, economic activity seems to have almost recovered lost ground. Part of this could be led by the lower stamp duty and GST on realty in the state of Maharashtra. Results from the banking sector are a further proof to the changing scenario.

In conclusion, it makes sense to buy on sharp dips and sell on rallies till there is clarity on the presidential election..