Exit polls are expected to be announced from May 19 evening, once the last phase of the election is over. Therefore, the market is likely to be very volatile from May 20 onwards, HDFC Securities said.
Given the importance of general elections for Indian markets, it becomes necessary for traders to hedge their bets.
Generally, election month sees wild swing with indices moving in a range of about 30 percent (May 2004 and May 2009).
Nifty has already lost over 500 points so far in May this year while Sensex has fallen 1,700 points in the same period ahead of election results.
“Exit polls are expected to be announced from May 19 evening, once the last phase of the election is over. Therefore, the market is likely to be very volatile from May 20 onwards,” HDFC Securities said in a note.
One more round of volatility will be witnessed on the day of counting, i.e. May 23. So, there are plenty of uncertainties surrounding the election outcome.
“Depending on the election outcome, Nifty may swing wildly on either side. Investors who are fully invested, it is always advisable to hedge the portfolio ahead of such big events,” said the report.
Therefore, investors who hold large equity portfolio can hedge it by buying Index Put Options. However, one should understand that hedging is like insurance, which comes with some cost.
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