Market Valuation may Push Higher with Stable Govt
Brokerages feel if the exit poll readings match the actual numbers on May 16, the fair valuation could jump as much as 10-15%
ASHUTOSH R SHYAM
The fair valuation of the Indian stock markets could surge by as much as 1015% if the numbers indicated for the NDA are reflected in the final outcome on counting day, May 16, a host of foreign brokerage firms have said.
These brokerages believe that if the final outcome mirrors that of the exit polls, the Sensex may hit target levels set by them as early as 2014-end. That is because a new stable gover nment will not only help encourage a pick-up in the investment cycle, but also influence the views of foreign funds, according to them. Consequently, global funds which have not participated in the recent Indian market rally could drive the next leg of incremental portfolio flows into India. Brokerages have been recommending prominent stocks such as Maruti, ICICI Bank, SBI, Axis Bank, Reliance Industries, Coal India, and ONGC as top picks in the case of a stable and decisive government coming to power on the D-Day. Nomura, in a note to its clients after the exit poll on Monday, said it expects markets to be underpinned by an inherent positive bias and to give an initial benefit of doubt to a potential Modi-led gover nment. “If exit polls are indeed proved correct on May 16, we then see about ~10% upside potential to our earlier 24,700 December-end Sensex target and ex- pect the index to end this year at 27,200,” the note, which was reviewed by ET, read.
Another foreign brokerage, Bank of America-Merrill Lynch, said it now expects 8% retur n by this year-end and an index target of 25,500. “However, we think the markets will trade at a premium to long-ter m average through 2014 as investors anticipate a spate of refor ms that lead to a tur n in the economic cycle,” it said. Merrill Lynch further elaborated in its note that it ex-
A new stable government is expected to not only help encourage a pick-up in the investment cycle, but influence the views of foreign funds
pects $25 billion of portfolio flows to put appreciation pressure on the rupee to .` 57-58/dollar. At the same time, we expect it to settle round .` 60/dollar levels as RBI is likely to buy FX to push up import cover from 7.5-8 months to 10 months, viewed as required for a stable currency.
With a possible change in gover nment, Citi in its note based on the exit polls said investor perception of India has changed from being ‘hated’ to being ‘loved’ and a positive election outcome would augur well for both stocks and bonds. Even though foreign institutional investors have invested $5.5 billion in Indian equities, many global funds have not participated in the recent rally. If there is a stable gover nment, global funds could well be net buyers in Indian markets, analysts said. These global funds have adopted a strategy of waiting until the for mation of a new gover nment, preferring to take a final view on Indian markets later even if it means missing out on an early rally. Credit Suisse said in its note that the exit poll results show the BJP would retain the most economically relevant ministries and the numbers would keep the markets afloat. Similarly, Goldman Sachs in its note said a stable government would provide room for carrying out meaningful economic reforms. It sees the exit poll results as a big positive for Indian assets.