Sensex hits two-year high; more gains seen if BJP wins UP

MUMBAI: Indian equities closed at a two-year high on Monday as the government moved closer to rolling out the Goods and Services Tax (GST), and hopes that Bharatiya Janata Party will win the ongoing assembly polls in Uttar Pradesh.

Analysts said that markets may scale fresh highs if the ruling party at the centre wins the UP polls, which will strengthen its case to secure a second term in New Delhi in 2019.

The Sensex closed up 215.74 points, or 0.75%, at 29,048.19. The Nifty was up 65.90 points, or 0.74%, at 8,963.45.

The markets have already factored in the outcome of state election results, said Deven Choksey, MD of KR Choksey Shares & Securities. The consensus, he said, is that the BJP will likely win majority in the Uttar Pradesh polls. UP is politically the most significant state in India with the highest number of constituencies. Results are scheduled to be declared this Saturday.

The optimism around polls have added impetus to a liquidity fuelled rally that has made Indian equities one of the highest gainers in the world so far this year. According to Bloomberg data, the Sensex and Nifty have gained around 9% in 2017, lagging only Turkey, Brazil and Poland among major emerging markets.

This has largely been funded by mutual fund inflows and money from foreign portfolio investors who have bought almost $2 billion of Indian shares this year. The fact that it is liquidity driven can also be seen from the rising price-earnings multiple, which is at a 61.8% premium to the comparable yardstick for MSCI Emerging Markets Index.

However, if the UP poll turns out to be different from expectations, that could have an adverse effect on markets, analysts warned.

“The markets definitely have legs to touch record high if BJP wins in UP. But there will be turbulence in market in case thre is any adverse outcome, as it has not made any significant correction after its touched lows in December,” said Ajay Bodke, CEO and chief portfolio manager, portfolio management services at broking company Prabhudas Lilladher Pvt Ltd.

Other triggers in the coming days would be March-quarter earnings (and guidance), GST implementation and the US Federal Reserve decision on interest rates.

ANY CORRECTION IN THE MARKET WILL IMPACT MID AND SMALLCAP STOCKS, WHICH HAVE BEEN MOST FAVOURED BY INVESTORS IN 2017, ANALYSTS SAID