Gujarat Election Results – Reading between the lines

It was one hell of a ride. People will remember 18 December ‘17 for a long time (obviously for various reasons). Rupee opened at 64.15 and within 16 minutes plunged to 64.74 (its lowest level since end November’17). Before the market participants could realize what’s happening, rupee was back to 64.15 in the next 52 minutes. All over in 68 minutes flat.

Nifty opened 114 points lower and plummeted another 136 points in the first minute of trading – a massive 2.5% erosion in a minute. It regained its composure and in an hour recovered towards the previous closing levels around 10300. It ultimately closed the day 1% higher.

What triggered such massive volatility is common knowledge.

Let me complement some thoughts:

  1. Big events brings in volatility – keep your positions adequately hedged to prevent heart burn or extreme ecstasy (provided you are able to capitalize on it).
  2. Exit polls are rarely correct (umpteen evidence to conclude this). Do not put your money on them unless you want to purely speculate.
  3. Financial markets are driven by sentiments (does economics and fundamentals have any influence??). Hoping for the best could be risky but it makes sense to be prepared for the worst.
  4. In this era of technology and artificial intelligence, news travel lightening fast and its impact on financial markets are equally quick. One would be rarely so efficient to change his hedging policy so promptly. Do not change hedging decisions based on news. One can certainly trade on it, though.
  5. Indian financial markets are riding the Modinomics juggernaut. There are 8 Indian State Elections in 2018 including critical states of Karnataka, Madhya Pradesh and Rajasthan. We had witnessed yesterday what a state election euphoria could do to Indian financial markets. Needless to say, in 2018 – be prepared to brace for volatility. BEWARE.
  6. BJP 99 and INC 77 at Gujarat could indicate that future state election results could be closer than anticipated – my personal opinion – one might disagree.