Nifty sets new record, rupee at 16month high on poll results

Nifty gains 1.7% to close at 9,087 and Sensex rises 1.71%, rupee crosses 66mark versus dollar

Indian stocks closed at a record high on Tuesday as investors saw the Bharatiya Janata Party’s landslide win in Uttar Pradesh adding momentum to Prime Minister Narendra Modi’s economic agenda.

Concomitantly, the rupee strengthened past the 66-mark to close at a 16-month high against the dollar.

The National Stock Exchange’s Nifty index gained 1.7% to close at its all-time high of 9,087 points. BSE’s Sensex rose 1.71% to 29,442.63, although it didn’t breach its record high.

On Saturday, the BJP won 312 out of 403 seats in the assembly elections in India’s largest state, leading many experts to project the party as the front-runner in the next Parliament polls in 2019.

“UP elections are basically giving a message that Modi is here to stay, and he has reforms as an agenda. With the momentum to reforms, the economic growth is set to flourish,” said Rakesh Rawal, chief executive of private wealth management at Anand Rathi Financial Services Ltd. “It seems to me that markets are cyclical and we had a fairly extended bear run, so it is about time a bull run takes place.”

Analysts said that the poll victory will embolden the government to focus on pending issues such as reform in the electricity sector and labour laws, the banking industry’s bad loans crisis and land acquisition issues. BJP leaders have said that the focus of the government will be now on compliance issues such as tax evasion and black money, and improving the ease of doing business in India.

Apart from foreign institutional investor inflows, the current run is also supported by strong inflows from domestic institutional investors, mainly mutual funds, owing to strong inflows in their schemes by retail investors.

“Apart from equities, where else can a domestic investor put money today? Real estate is not as lucrative, and deposit rates are also not as attractive as before,” said Rawal.

Still, others, highlight the lack of fundamental support: a shaky economy, a tightening interest rate cycle, and tepid corporate earnings are key risks to the stocks rally. On Tuesday, the India VIX, the so-called fear gauge, dropped to an all-time low; one way to read it is that the market is getting complacent.

“The recent state elections win may intensify the government’s economic reform efforts. Nonetheless, earnings will be the key to the market’s performance as global and domestic interest rate cycles will likely turn less supportive,” said Kotak Institutional Equities in a 14 March note to clients.

Traders were also cautious ahead of the expected increase in US interest rates during a twoday meeting which will start on Tuesday, and were looking for clues on how quickly the US central bank is planning to tighten monetary policy. A quickerthan-expected tightening will lead to a dollar squeeze for emerging economies and could hit their competitiveness and trade, besides capital flows.