Exit poll forecasts of NDA win set to give ammo to bulls

Stock-market bulls are likely to be enthused by the Lok Sabha exit polls that have predicted a majority win for the ruling National Democratic Alliance (NDA) government.

According to analysts, markets had sensed the exit polls on April 17, when BSE Sensex ended 537.29 points higher at 37930.77 while Nifty closed 150.05 points to 11407.15, the most in almost two months.

All exit polls on Sunday gave thumbs up to Narendra Modi who is seen returning as Prime Minister for the second term. Exit polls from C Voter to Today's Panchari indicate NDA getting 270 to 340 seats while United Progressive Alliance (UPA) is estimated to get 70 to 132 seats. The others, including Federal Front and Mahagathbandhan, are expected to get 40-133 seats, according to various exit polls.

A K Prabhakar, head – research, IDBI Capital, said, with exit polls indicating over 270 seats for NDA, the markets will definitely show positive trends on Monday.

"The markets have a got a sense of it beforehand, and tomorrow, it will be positive. I expect the Nifty to be at 12000-12500-level in the short term. If it doesn't go up in 15 trading days, markets will again correct. There will be an election-victory rally, but after some time the market will correct," Prabhakar said.

According to Siddharth Sedani, vice president – equity advisory, Anand Rathi Shares and Stock Brokers, markets discount an event beforehand and it got a glimpse of the exit polls on Friday itself.

"The market will react positively after the exit polls today, but I do not expect a big rally in the next three days. Maybe a knee-jerk reaction of Nifty being 100 points plus, which is quite positive. But the actual reaction will come post May 23, based on how the actual numbers are," Sedani said.

However, if NDA gets anywhere below 270, markets will react negatively, both Sedani and Prabhakar said.

"Anything below 240-250 seats for NDA means too many parties have to come together, and that may derail the reform process," Prabhakar said.

In such a case, the markets "will take it on the chin", Sedani said, adding that the markets have corrected considerably, around 5.5-6% on the index basis in last 15 days.

"Markets have taken a beating, and have already bounced back. So immediately the markets will not react in a big way because of the exit polls. We also need to understand that electoral outcome is not a huge cushion for the markets, as the markets will overall perform based on the quarterly earnings and global cues," he said.

Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services, said, "The exit poll results are better than the expectations. Markets will move up by 2-3% in the next few days. I am quite optimistic at these levels. Investors should increase equity allocations."

However, an analyst, on the condition of anonymity, said one should not make investment decisions based on the exit polls. In 2004 and 2009, the exit polls were not correct, whereas only Panchari's estimations were correct in 2014.

"People, out of fear, do not always tell truth about who they have voted. So exit polls may not be correct always. Investors are advised to wait till May 23 before investing," the analyst said.

Deepak Jasani, head of retail research, HDFC Securities, said most exit polls have predicted NDA to win the Lok Sabha elections by a good margin.

"This was partly discounted in the markets over the last few days. The Street would like it even more if the BJP on its own gets a majority in the Lok Sabha. However, going by the way the exit polls in the last two elections were off the mark from the actual numbers, the markets would get excited but not super excited. The Nifty could open on Monday with an up-gap of 90-150 points and later consolidate. Over the next three days, it could then look up to corporate results and/or global developments. The fact that NDA may be able to achieve the majority in Rajya Sabha only in 2020 or 2021 is a minor dampener as major reforms would need passage in both houses," Jasani said.

Motilal Oswal in its Election Strategy 2019 note said after the recent volatile swing, Indian indices are likely to see the next leg of the movement as per the election outcome. India VIX (Greed and Fear indicator) is near to 28 zones which is the highest levels in the last 44 months, since September 2015. Higher option premium due to election results and higher volatility suggest that volatile swing could be seen in the Indian market as per the outcome.