The better-than-expected show by the Narendra Modi-led Bharatiya Janata Party (BJP) in the assembly elections in Rajasthan, Delhi, Madhya Pradesh and Chattisgarh is likely to turbocharge equity markets.
Notwithstanding persistent concerns over the feared US Fed tapering, markets are likely to open with a gap-up and scale new highs today, driven by hopes that the BJP may well extend its winning spree to the national election next year, thereby potentially ending the Congress party’s decade-long rule by May 2014, an outcome favoured by investors.
“The impact of these results will be felt” on the next national election, said Sanjay Lodha, a professor of political science at Mohan Lal Sukhadia University in Udaipur, Rajasthan.
Agreed ICICI Securities (I-Sec) CEO and MD Anup Bagchi. Soon after the poll results were announced on Sunday indicating a BJP win, I-Sec said it sees the NSE Nifty scaling its lifetime high of 6,700 in the run-up to the general elections.
“We see the Nifty sniffing at a new high of 6,300... immediately. We see resistance at 6,300 in the immediate future but it may well peak around 6,700 in the run-up to the forthcoming general elections,” Bagchi said in an interview to PTI.
According to Bloomberg estimates, benchmark stock indices will likely climb as much as 6% to a record by this year-end if the BJP goes on to form the next government in the four states. The S&P BSE Sensex may climb to almost 22,200 from its Friday closing level of 20,957.81, a report said.
“Mood is very positive” as the market feels that whichever party secures a clear mandate will provide a decisive administration, Bagchi said.
Most market participants said any BJP win in the next general election would be seen as a trigger for both renewed investment cycle and economic revival.
Gaurang Shah, assistant vice-resident, Geojit BNP Paribas Financial Services, believes that the bulls have taken the BJP’s strong showing at the hustings very well. “We are likely to see a gap-up opening on Monday morning. We are likely to see 100-150-point rally in the Nifty with all sectors in the green.”
Raamdeo Agrawal, joint MD, Motilal Oswal Financial Services, believes that while markets will see a turnaround in the sentiment of the domestic investors, investors would do well to stick to buying quality companies with strong fundamentals, not stocks that rise in response to the outcomes of state elections.
Industry leaders, too, said results of four state elections are a strong message that the government and political parties need to ensure good governance and provide corruption-free rule.
“The Congress has been shown the door for poor political leadership and unconvincing approach to corruption,” said billionaire businesswoman Kiran Mazumdar-Shaw, MD of Biocon. The Aam Aadmi Party’s (AAP’s) “amazing” debut in Delhi shows that “people want corruption-free politics based on transparency and responsibility”, she said.
Industry chamber Assocham said: “Certainly, the voter may not understand the complexities of economics, but he/she reacts rather strongly if his/her purchasing power is curtailed by inflation.”
“If Modi comes in and if the BJP can form a strong coalition (next year), it would be very positive for the markets,” said Sam Mahtani, a London-based director of emerging markets at F&C Asset Management, which manages $150 billion in assets. “The size of the coalition will be the main challenge for whoever comes to power. They will have to do reforms and negotiate with a lot of smaller parties.”
—With PTI and Bloomberg