With exit polls predicting a clear victory for the Modi-led NDA government in the Lok Sabha elections, stock markets Monday witnessed an unprecedented rally that sent the benchmark Sensex soaring 1,421.9 points to close at a record high of 39,352.67. The NSE Nifty Index surged over 421 points to post its best single day gain in over 10 years as investors started to move, perceiving the end of uncertainty over the debate on political stability and policy continuity.
Even as the 30-share Sensex registered its biggest one-day rise in the last six years, investor wealth, or the market capitalisation of listed companies, jumped by over Rs 533,000 crore to Rs 151,86,312 crore. The rupee also gained 49 paise — also the biggest single-day gain in two months — to close at 69.74 against the US dollar following sharp gains in the equity market and foreign capital inflows.
Exit Poll Results 2019: Check state-wise Lok Sabha election exit poll results
Market experts said since majority exit polls have predicted a clear majority for the BJP-led NDA, the possibility of Narendra Modi retaining power will ensure continuation in reform measures initiated during the NDA’s first term. Dhiraj Relli, MD & CEO, HDFC Securities, said, “Indian markets expectedly cheered the outcome of the exit polls and Nifty registered its largest point gain since January 25, 2009. Nifty is just shy of an all-time high of 11,856 but has nevertheless closed at its all-time closing high. Markets seem to have almost fully discounted the outcome of final election results.”
Vinod Nair, Head of Research, Geojit Financial Services, said, “markets elevated to near record high while rupee strengthened as exit polls predicted a landslide victory for the ruling government. Short covering and value buying were seen in many beaten-down stocks and sectors in expectation of continuity in policies and reforms. The rally was broad based where banks and infrastructure outperformed. Global market was mixed due to trade tensions and rise in oil prices as OPEC is likely to maintain production cut in 2019.”
Joseph Thomas, Head — Research, Emkay Wealth Management, said, “The domestic equity markets witnessed unprecedented and remarkable surge, across all sectors and segments, after the exit polls indicated a higher probability for the current dispensation to come back to power with a clear majority.”
The markets, analysts said, would be able to sustain the momentum if factors that are fundamentally important, like decisive policy initiatives from the new government, faster land and labour reforms and also the unfinished task of quick consolidation and re-organisation of the banking system, are undertaken with seriousness.
According to Devang Mehta, Head — Equity Advisory, Centrum Wealth Management, markets Monday started to price in the end of uncertainty on the debate around political stability and policy continuity on the back of various exit polls. If the actual results are close to exit polls, the markets may see a revival in domestic and foreign investor sentiment towards Indian equities.
“Once the noise around election results die down, market participants will be keen to watch the steps taken by the government to stimulate demand, boost consumption, revive capex and hence recuperate economic growth,” Mehta said.
Pradeep Gupta, Co-Founder & Vice Chairman, Anand Rathi, said, “The expected stability and continuity in policy, increase in FII inflow are keeping the markets positive. We are likely to see a revival in the corporate performance from the 2nd quarter this financial year. If these results hold true on May 23, it will be good for the economy, though in short term the markets may be driven by sentiments.”
Several brokers, however, cautioned retail investors about the current volatile situation. “If the results are different on the counting day on May 23, the market will see a crash. Retail investors should stay away from volatile markets. Also there’s no guarantee that this rally will sustain or not as the economy is slowing down,” said veteran BSE broker Pawan Dharnidharka.
Analysts said it is quite rare to see that no one is bothered what is happening in global markets and whether the US President has sent any tweet or not Monday. “Today, it was all about our mega event and the result of exit polls over the weekend. With almost all polls indicating the NDA government back in power with a thumping majority, the market was overjoyed,” said Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel Broking.
The priority of the next government, analysts said, will be to revive economic growth, exports and investment although the macro-economic conditions are not very favourable. India will have to implement directed fiscal stimulus like housing to derive maximum gains from any limited fiscal stimulus.
However, experts say there is limited scope for broad fiscal stimulus given India’s high and persistent fiscal deficit, faltering tax revenues and broken business models in agriculture and infrastructure. But broad monetary stimulus in the form of policy rate cuts (100 basis points), CRR cut (100-200 bps) and higher FPI limits for government bonds in order to increase inflow of foreign capital (savings) to make up for the decline in domestic savings and difficult economic reforms will revive the economy.
According to an official of Kotak Securities, the next government will have to implement certain reforms to further improve the “ease of doing business” in India with the ultimate objective of increasing India’s investment rate and creating jobs. India still ranks quite low on important parameters although its overall rank has improved dramatically under the current government.
The central government may want to focus on reforms in factors of production including labour and land and the role of government in business including privatisation of PSUs and review of extant ownership and pricing policies to encourage greater FDI and private investment in the critical infrastructure sector. However, these reforms may not be easy to implement politically.