Analysts advise hedging India's equities portfolio prior to the outcome of the state elections

 Analysts advise hedging India's equities portfolio prior to the outcome of the state elections

Analysts advise hedging India's equities portfolio prior to the outcome of the state elections

On Sunday, the outcomes of the five states' assembly elections will be announced. Private companies' exit surveys are scheduled to be made public on Thursday night after the elections. Early in the next year, India will have its general elections.

Analysts encourage investors to use options to hedge their portfolios because they believe that the outcome of important state elections later this week would cause volatility in India's equities markets to rise.

On Sunday, the outcomes of the five states' assembly elections will be announced. Private companies' exit surveys are scheduled to be made public on Thursday night after the elections. Early in the next year, India will have its general elections.

This year, the blue-chip Nifty 50 index in India has gained 11% and increased by 5% in November, closing close on all-time highs. It was 20,044.6 IST at 12:40 p.m.

Late on Wednesday, Nuvama Wealth & Investment advised long-term investors to purchase 20,000 strike put options on the Nifty 50, which expire on December 28. Right now, the option is priced at Rs 160.

With a put option, an investor may sell the underlying asset for a predetermined amount—in this case, $20,000.

For a component of the portfolio, head of retail research at HDFC Securities Deepak Jasani suggests out-of-the-money protection options with strike prices 200–300 points below the current Nifty 50 level.

Purchasing a put option shields the investor against any decline below the option's purchase price and the Nifty 50 strike price.

Citing the impending general elections, Societe Generale downgraded Indian stocks on Wednesday from "overweight" to "neutral".

The director of technical analysis at Nuwama, Sagar Doshi, said in the letter that "political events are notorious for changing market mood." The Nifty 50 has increased by more over 1,000 points without experiencing a 1% correction, he said. "Brought a feeling of satisfaction."

According to HDFC's Jasani, a 2% to 4% drop in the Nifty 50 is anticipated on Monday if the governing Bharatiya Janata Party of India loses elections in both of the important states of Rajasthan and Madhya Pradesh.

The Nifty 50, which was within 200 points from reaching its all-time high, and equities that were setting new 52-week highs diverged, according to Nuvama's Doshi.

Additionally, retail index futures holdings just peaked.

Doshi said that all of these elements need a "judicious approach" while defending viewpoints on the outcomes of state elections.