To be sure, investors say the election outcome – with Modi’s alliance winning 293 of 543 lower-house seats – is unlikely to derail this trajectory, nor is India’s broadly stable currency and attractive debt market likely to be unduly ruffled.
“We’re still seeing strong growth coming from India…I think it’s a buying opportunity,” said Kristina Hooper, chief global market strategist at Invesco in New York
Mumbai:
The Indian indices shrugged off election jitters and massively rebounded in a sharp rally on Wednesday, as the BJP-led National Democratic Alliance (NDA) prepared to stake fresh claims for government formation.
The investors gained Rs 12 lakh crore in a single session — after losing nearly Rs 30 lakh crore on Tuesday amid political uncertainty — as banks, automobile, and FMCG stocks led the gains in Nifty.
The Sensex closed 2,303 points, or 3.2 per cent, up at 74,382, while the Nifty zoomed 735 points, or 3.36 per cent, to close at 22,620 on Wednesday.
Bank Nifty went up 2,126 points, or 4.53 per cent, to close at 49,054.
Experts said that in the current market scenario, investors should remain cautious about investing in momentum stocks or smallcap stocks which have remained overheated for the past two years.
“Any sustained period of sideways or downward movement in momentum stocks can trigger a sell-off in these shares. Investors, therefore, should consider the risk involved before making such investments,” said Vaibhav Porwal, Co-founder, Dezerv.
However, “we believe that the investors should capitalise on this opportunity for fresh investments in equity”, he added.
As the speculative trades built around Lok Sabha election results unwind and as clarity around the new government emerges, markets will find their ground, experts noted.
With elections around the corner in several major global economies, including the US, the stock markets will watch out for the likely stand of the US Federal Reserve and other central banks.
“We believe portfolio allocations and future policies of the NDA government will be a key determinant of market movements,” said Amnish Aggarwal, Director (Research), Prabhudas Lilladher.
Investors have prospered under Modi, 73, as India’s equity benchmarks have more than tripled since he started as leader in May 2014. Earnings growth drove annualised total return for the MSCI India index to 7.1% over the period, against 1.3% for MSCI’s Asia ex-Japan index.
To be sure, investors say the election outcome – with Modi’s alliance winning 293 of 543 lower-house seats – is unlikely to derail this trajectory, nor is India’s broadly stable currency and attractive debt market likely to be unduly ruffled.
“We’re still seeing strong growth coming from India…I think it’s a buying opportunity,” said Kristina Hooper, chief global market strategist at Invesco in New York.
Next year’s budget due in July is shaping as the next test of policy commitments, with expectations that India will use a recent windfall surplus from the central bank to reduce the deficit quicker below the targeted 5.1% for the year.
“Typically the budget is used to announce the five-year policies, so we should get a clearer idea of what the game plan is,” said Sonal Varma, chief economist for India at Nomura in Singapore.
Foreign money is also sensitive to relative market moves, and gushed into India last year as managers with mandates to invest in Asia took down positions in China’s tumbling markets and bought up in India – something that is beginning to reverse. And uncertainty never helps.
“I’m telling clients don’t be in a hurry to invest in India,” said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute in St. Louis, Missouri. “It’s still a pretty chaotic place.”
Meanwhile, rating agency Fitch said the BJP losing its outright majority and relying on allies to form a government could pose challenges for the more ambitious elements of reform agenda like land and labour, Prime Minister Narendra Modi-led BJP lost its majority for the first time since 2014, winning 240 seats in the 543-seat Lok Sabha.
As the BJP fell short of an outright majority and will need to rely more heavily on its coalition partners, “passing contentious reforms could prove more difficult, particularly around land and labour, which have recently been flagged as priorities by the BJP to boost India’s manufacturing competitiveness,” Fitch said.
Fitch however expected policy continuity to persist despite a slimmer majority. It expected the government to retain its focus on capex push, ease of doing business measures, and gradual fiscal consolidation.
“We expect India’s strong medium-term growth outlook to remain intact, underpinned by the government capex drive and improved corporate and bank balance sheets. But upsides to medium-term growth prospects are likely to be more modest if reforms prove more challenging to advance,” it added.
Agencies