Exit polls spark early celebrations

Investors euphoric over exit polls predicting a thumping win for NDA lifted the benchmark equity indices to record peaks on Monday.

However, analysts said the rally may be tempered in coming days as investors have already priced in the development.

The benchmark indices logged their biggest single-day gain in a decade, with the BSE Sensex on Monday closed 1,421.90 points or 3.75% higher at 39352.67 and the NSE Nifty 50 ended 421.10 points higher at 11828.25, up 3.69%.

Of the 30-stock Sensex, only two stocks – Infosys (-0.19%) and Bajaj Auto (-1.18%) ended in the red. Major gainers were IndusInd Bank, State Bank of India, Tata Motors, Yes Bank, L&T and HDFC, gaining 6.2%-8.64%. Among Nifty 50, major gainers were Adani Ports (10.99%) and India Bulls Housing Finance (10.62%), apart from IndusInd Bank, SBI, Tata Motors and YES Bank.

Naveen Kulkarni, head of research, Reliance Securities, said, the exit polls have been better than market expectations with the ruling party getting a comfortable majority. However, the market has been rallying for the last two days and it has factored the information to some extent.

The market is likely to rally further, as per Kulkarni, but the rally may not be significant as there are challenges of not so encouraging earnings growth, lower liquidity, slowing economy and global challenges. There could be sector-specific rally like infrastructure and banking that could do well, he said.

In 2014, after the exit polls were announced on May 12, the last day of the nine-phased Lok Sabha election 2014, BSE Sensex had risen 320.23 points to 23871.23 and NSE Nifty 50 94.5 points to 7108.75 on May 13. On May 16, the day election results were announced, Sensex rose 216 points to 24121.74, while NSE Nifty 79.85 points to 7203.

On Sunday evening, after the last phase of elections was over, a series of exit polls showed BJP-led NDA getting a clear majority. According to the exit polls, NDA should get 270-340 seats, whereas BJP alone should get 260-290 seats. This infused a sense of stability and euphoria in the domestic market, which witnessed its highest single-day gain since 2009.

Abhijeet Bajpai, co-founder, Avighna Trades, said buying quality stocks in small quantity on every dip will be the best strategy for investors.

"A lot of midcap and smallcap stocks are trading at good valuations and we expect them to catch up with heavy weights and command considerably higher valuations from here. On the cautious side, investors should hedge their portfolios with put options, as the exit polls in the past have failed to predict the actual results. Between today and May 23, markets are expected to trade with positive bias and may surpass this year highs," Bajpai said.

Of the 11 sectoral indices on NSE Nifty 50, all ended with gains, led Nifty PSU Bank (7.88%), Nifty Realty (5.72%) and Nifty Financial Services (4.6%). The market breadth remained positive, in favour of the buyers.

According to Gaurav Dua, senior VP, head – strategy & investments, Sharekhan by BNP Paribas, sentiments have turned around drastically and the benchmark indices can gain 5-8% more from here over the next few weeks if the final election outcome is in line or even better than exit polls.

"Though the rising tide will lift all the boats, it would be advisable to use the rally to exit from the troubled companies/sectors facing balance sheet issues or demand slowdown pangs. Such event-driven surges are a good opportunity to restructure the investment portfolios," said Dua.