Betting on more policy reforms following the decisive mandate for the Narendra Modi-led NDA government in the general elections, stock market benchmarks Sensex and Nifty on Friday rallied to record closing highs with the BSE Sensex soaring 623.33 points, or 1.61 per cent, to end at 39,434.72 and the broader NSE Nifty surging 187.05 points, or 1.60 per cent, to 11,844.10.
With this gain, the 30-share BSE Sensex rose over 1,503 points and the broader Nifty gained 437 points during the week that witnessed volatile movements ignited by political factors. On May 20, when the Exit polls predicted a clear victory for the NDA in the elections, stock markets witnessed an unprecedented euphoric rally that sent the benchmark Sensex skyrocketing 1,422 points to close at a record high of 39,352.67. Investors wealth, or market capitalisation, has shot up by a whopping Rs 612,000 crore to Rs 152.71 lakh crore in the last five days.
Vishal Kampani, managing director, JM Financial Group, said, “India has decided in unequivocal terms in favour of stability and continuity which are crucial for economic reforms and growth thereby keeping the country a sweet spot for investment. The overwhelming victory will enable the NDA-led government without political compulsions, to continue with the reforms they started well.” Stability in macro-environment will give legroom to the corporate houses to plan medium-to-long term growth and instill further confidence among the foreign investors, analysts said.
“It is important to begin well, but what is more important is to finish well too. That makes this electoral decision crucial for India’s future growth. I am confident the government will respond responsibly to this mandate through bold and positive steps to pace up the growth momentum,” Kampani said.
Analysts said the return of the Modi government with more majority will ensure continuation in reform measures initiated during the NDA’s first term. “This landslide victory has raised hopes that the government would take decisive actions to boost business sentiment and that in turn will support the market growth. We feel this feel good factor could extend next week too, provided feeble global cues do not spoil the party, said Jayant Manglik, president, Religare Broking.
“The risk taking ability came back as the elections concluded with overwhelming result. The market settled for a board-based rally expecting better outlook for the economy in the next one to two quarters. Volatility index halved to 16.5 compared to three days back, pushing mid & small caps across the market given attractive valuation. This trend is likely to continue in the near-term and settle for a long-haul expecting the upcoming final budget,” said Vinod Nair, head of research, Geojit Financial Services.
Banking on major changes without political compulsions
The perception in the market is that the overwhelming victory will enable the government to undertake major changes in the economy without political compulsions and give a big boost to the larger economy. On the other hand, stability in the macro-environment will give legroom to the corporate houses to plan medium-to-long term growth and instill further confidence among the foreign investors. It also means that if the government doesn’t respond responsibly to this mandate through bold and positive steps to boost the growth momentum, the market could face headwinds and a bear onslaught.
The market will ultimately move only in line with fundamentals when the initial euphoria slowly disappears. “All said and done, markets will move based on earnings visibility, economic policies, global sentiments and how their impact will be on corporate earnings will be the real guiding factor for the markets in the long run,” Jimeet Modi, founder & CEO, SAMCO Securities.
According to experts, markets had a very vigorous week and therefore sufficient rest will be needed before it can find new pace. While volatility will eventually come down and rationality will prevail, benchmark indices might not give any direction next week but could face mild downward pressure and Indian markets will finally align with the global mood.
“As of now, a wait-and-watch approach should be followed by markets at least till the Monetary Policy and Budget announcement by the newly elected Government, which might be a game changer,” said an analyst.
Meanwhile, on Friday, all the 19 BSE sectoral indices, led by realty, capital goods, industrials, telecom and auto gained as much as 4.25 per cent. In the broader market, small-cap and mid-cap indices outperformed the benchmark Sensex. The BSE Smallcap index soared 2.43 per cent, midcap climbed 2.09 per cent and largecap advanced 1.61 per cent.
Although domestic indices attained new highs, some sectors were conspicuously weak. FMCG, IT, metals and auto did not participate in the sentimental rally during the week.