Markets swing to poll tune
Benchmark indices recoup initial losses after BJP wins elections in Gujarat and Himachal Pradesh
Indian stock markets gained on Monday after Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) won the state elections in Gujarat and Himachal Pradesh. The key benchmark S&P BSE Sensex gained 139 points, or 0.4 per cent, to close at 33,601, while the Nifty 50 closed at 10,389, up 55 points or 0.54 per cent.
The Sensex had declined as much as 867 points, or 2.6 per cent, in the opening hour as some early trends showed the Congress in the lead. The index at one point was trading 339 points higher as the BJP started to gain ground. However, the Sensex settled 200 points lower from the day’s high as the victory margin was narrower than what the Street had expected. Following cues from the equity market, the bond and rupee markets also witnessed some volatility. Yields on the 10-year bond rose to 7.22 per cent before settling at 7.18 per cent, from Friday’s level of 7.13 per cent. The rupee also witnessed some pressure, sliding to a day’s low of 64.71 amid selling by foreign investors. It closed at 64.23 a dollar, down from Friday’s close of 64.05.
Even the broader markets remained positive, with the BSE MidCap and SmallCap indices gaining 0.76 per cent and 0.45 per cent, respectively. The markets on Friday, too, had seen sharp gains after exit polls suggested a BJP win. Foreign portfolio investors (FPIs) remained net sellers to the tune of ~431 crore, while domestic institutions net purchased shares worth ~1,076 crore, provisional data showed.
Experts say the BJP’s victory is positive for the markets, as it will help the government to carry on with reforms. “The poll verdict is a positive development from the market point of view, as the central government will now look to push its reforms agenda, further helping the economy to get on a high growth path. Other factors such as global markets, inflows into mutual funds and global commodity prices will add steam to the market rally,” said Nirmal Jain, chairman, IIFL.
“With the elections now over, the markets will go back to looking at fundamentals, which are not so great. That said, the liquidity-driven rally may continue for the balance of the year (FY18). Monday morning was a warning sign of what could come if there is some real negative news. There are no fundamentals to hold the markets,” said Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies.
Automobile and banking stocks led Monday’s rally, with shares of Mahindra & Mahindra gaining 2.7 per cent, the most among Sensex components. Wipro, ICICI Bank, Maruti and Asian Paints also gained more than 1.5 per cent each. Shares of state-owned banks also posted impressive gains on the back of the government’s announcement of an additional allotment of ~11,000 crore to the bank recapitalisation plan. While the Nifty PSU Bank index closed 2.3 per cent higher, shares of State Bank of India ended two per cent higher.
As the attention shifts to corporate earnings and economic growth in the next few months, several brokerages are also pointing to green shoots.
“Earnings in the last one year have been hit by reform measures such as the goods and services tax (GST). However, corporate profits are expected to normalise from the December quarter onwards. Things look positive on the economy front as well as economic growth is showing signs of revival,” said U R Bhat, managing director, Dalton Capital Advisors.
Things on the global front also continue to look positive as portfolio investors continue to chase relatively risker emerging market equities. Currently, liquidity conditions remain benign. Though the US Federal Reserve has embarked on a gradual path of raising interest rates and tapering its balance sheet, the European Central Bank and the Bank of Japan have a loose monetary stance.
From the investment perspective, Holland suggests investors steer clear of the pharma and power sectors. The information technology (IT) sector is probably seeing the worst of times and will take time for restructuring of the companies in this space to come through, he feels, and remains bullish on private banks, housing finance and the auto sectors.