Sebi, Market Entities Up Vigil on Stocks for Election Results: Report

To ring fence the capital market from possible manipulations against the backdrop of election results on Friday, May 16, the Securities and Exchange Board of India (Sebi) as well as bourses and other market entities have prepared an elaborate vigil mechanism.

While market authorities have been already monitoring stock movements very closely since last few days - which saw markets surging to record highs on the back of exit poll and other predictions - they are now mainly focusing on tackling any possible shocks on Friday and Monday, May 19.

The counting of votes for 543 Lok Sabha constituencies will begin on Friday at 8 am, while clear trends are likely to emerge by afternoon and final results may keep coming out till late evening.

The markets would open as per their normal time at 9 am and close at 3.30 pm, leaving scope for impact of the results on Monday as well after weekly trading holidays on Saturday and Sunday.

A special team at capital market watchdog Sebi is keeping a close tab on the stock market movements, while another team would also be monitoring the election results as they get announced to understand whether price movements are linked to outcomes in various constituencies, sources said.

According to sources, the stock movement of companies related to Gujarat and many others are being closely watched as they have witnessed huge rallies in recent weeks.

Besides Indian market movements, the trends in overseas markets and factors affecting foreign institutional investors are also being monitored almost on a 24/7 basis.

Besides, stock exchanges have put in place various circuit filters to stave off excessive volatility in stocks as well as derivatives segments.

Brokerages and other market entities are also advising investors to ensure that there are no sudden spurts or falls in the market, while investors are being discouraged from excessive margin exposure.

The aim is to ring fence the interest of investors and ensure smooth functioning of the market tomorrow by preventing manipulative activities, sources said.

The preparations are being done while keeping in mind the experience of previous times during the day of Lok Sabha poll results.

Apart from Friday, market authorities would be keeping a special watch on May 19 (Monday) also to ensure there are no disruptions of any kind.

Brokerages have sent out advisories to their clients, while trading exposure based on margins - the multiples of the cash position that investors are allowed to trade in - is also being curtailed for intra-day trades.

Leading bourses Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) relaxed the dynamic price bands for stocks that trade in the derivatives segment with effect from May 13.

Stock exchanges have a mechanism of dynamic price bands, commonly known as dummy filters or operating range, which prevents acceptance of orders for execution that are placed beyond price limits set by the bourses.

"In the event of a market trend in either direction, the dynamic price bands may be relaxed during the day in coordination with the other exchange," o similarly worded circulars from BSE and NSE said.

The BJP-led National Democratic Alliance (NDA) is projected to form the government at the Centre with exit polls tonight giving between 249 and 290 seats to the Narendra Modi-led grouping, which is close to the half-way mark in the 543-member Lok Sabha.

The preparations by market authorities have also taken into account their experience during the result day of last Lok Sabha elections.

On May 18, 2009 - the day when results of last Lok Sabha polls were announced - markets gained so much that trading had to be halted.

That date is still known as 'Magic Monday' in stock market as the benchmark index Sensex posted its biggest ever gain of over 2,100 points in just one-minute trade after investors were enthused by a decisive verdict in the then concluded general elections.

The experience was another extreme on May 17, 2004, soon after the announcement of 2004 Lok Sabha elections, the markets witnessed the worst-ever bloodbath on concerns of uncertainty over the economic reforms as the then NDA government was voted out of power.