Before market opened at 9:15 am today the early trends started indicating a decent lead for ruling BJP led NDA. Though it was only the early trend, when read along with the predictions made by majority of the exit polls, market drew comfort and opened 1.4% up and for the next 1.5 hours trended further up to a gain of 2.5% over the previous day. In the process, it also made a new all time high of 12,041 crossing the psychological level of 12,000.

However, immediately after that the market started declining, with only minor recoveries during the day and closed at 0.7% lower than the previous day and 3.2% decline from the top of the day.

The move from top to bottom of 3.2% was very surprising for most market participants on such perceived favorable election results.

As per my view these are the reasons –

1. As highlighted in our recent note analysing impact of 2019 elections on stock market, under these kind of election results (scenario 1) we did expect profit booking after initial upmove.
2. Also in the same note, we had looked into relationship between Indian and Global markets and how we move with them especially under a panic situation. Today the global markets were under cloud due to US-China trade tensions and Brexit.
3. Further, expecting a secular and significant upmove on such a brilliant election result day, I believe many retail investors would have built long positions on opening especially given that it had opened up only 1.4% and there have been instances in the past when market had moved significantly up on these kind of days. The decline might also be a move against retail consensus by institutional/ smart money force closing those positions.

Please note, I think the full election move still might not be completely done with and shortly (once global markets are supportive), nifty may again see a decent upmove followed with gradual profit booking before Modi 2.0 announces new cabinet, further policy decisions and macros start becoming supportive again.