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%

The Economic Times - - Markets & Finance -

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.

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