D-Street primed for poll verdict & investor frenzy
May 15 2014 , Mumbai
Analysts expect rally if results match exit polls; Sebi mounts vigil
Equity benchmark Se-nsex has rallied nearly 1,600 points since last Friday on expectations of a decisive verdict in favour of the BJP-led National Democratic Alliance (ND-A) in the national election.
It will be a big surge if the Narendra Modi-led BJP coalition manages to win 272 or more seats, claim analysts. Anything short of it could lead to a market crash. “I’m bullish,” said Dinesh Thakkar, head of Angel Broking. “The market will be in the positive territory in entire Friday’s session. I’m of the view that the bull run has begun in Indian stocks.” Thakkar’s optimism is based on the exit poll projections of a comfortable majority for the NDA.
Some analysts say a result in line with the exit polls could make the equity benchmarks hit the upper circuit, like they did in 2009, when a majority verdict for the UPA minus the Left parties had sent stocks soaring. “If NDA fails to win a majority on its own, there could be a knee-jerk reaction,” Thakkar said.
This is not a scenario the market is even contemplating. Sensex rallied to 24,068.94 on Thursday before ending at the highest-ever close of 23,905.60, up 90.48 points or 0.38 per cent. The National Stock Exchange’s Nifty closed at 7,123.15, up 14.40 points (0.20 per cent).
This impatience can also create over-exuberance, which is what has put the market regulator on alert. The Securities and Exchange Board of India (Sebi) said it was prepared to deal with any unusual movement in stocks.
“We are conducting stress tests on risk management and payment settlement systems on a daily basis,” Sebi chairman UK Sinha said. The regulator already had a series of meetings with the stock exchanges. “We will not allow anyone with intention to create any irregularities in the market to succeed,” Sinha said. Stock exchanges are keeping tabs on the collateral positions of brokers and clients.
The Reserve Bank of India (RBI) has discussed contingency plans with the finance ministry and the Sebi to deal with any excessive volatility in the rupee.
Pankaj Pandey of ICICI Securities said the market should rally at least two per cent if the results are on the expected lines. “There has been a buildup ahead of the election results. If the results disappoint, we could see some profit booking,” he said. He wasn’t too sure if a bull run had begun in the market.
Some analysts say the fate of the market from here on will depend on the shape of the government, its constituents and the people put in charge of the key economic portfolios.
The Sensex has risen 13.08 per cent this year through May as foreign institutional investors (FIIs) have pumped nearly $6 billion in local stocks. On Thursday, they were net buyers of stocks worth Rs 934.94 crore.
“While the market has run up over the trailing week (Nifty 6 per cent, Bank Nifty 10 per cent), we think the path from intent to action (and onwards, to outcome) is a long and arduous one. This is the beginning of (yet) another beginning for India,” said Dipen Sheth, analyst with HDFC Securities.
HDFC Securities said the market has “somewhat factored in” between 250 and 270 seats for the BJP and allies. If the final tally ends at that, the market is likely to float up gradually in continuation of the recent momentum.
This was what the market reflected on Thursday, said Sheth. “If this tally is achieved, the recently acquired momentum would consolidate and then take the market forward over the next few weeks/months as news flow picks up around cabinet formation, policy changes and key decisions. This calls for some calculated aggression around cyclical stocks despite the recent flareup in prices,” HDFC Securities said.
The domestic market euphoria has had a rub-off also on India-focused global analysts. Citi economists expect India’s GDP growth to gradually recover on higher levels of foreign investment and higher levels of consumption.
“Further, higher levels of government revenues, as well as a more stable government should help to fuel continued investment into the country’s infrastructure and health and education programmes,” they wrote in a note to clients.