Sensex gives 1400-pt salute to Modi's return; best post-exit poll rally since 1999

Banking, capital goods, oil & gas, realty, metal, consumer durables, automobiles and utilities indices were up in the range of 2.5% to 4% on the BSE on Monday

The benchmark indices on Monday posted their biggest post exit poll intra-day gain since the 1999 Lok Sabha elections with the S&P BSE Sensex and Nifty50 rallying nearly 2.7 per cent each, expecting ruling the Narendra Modi – led Bharatiya Janata Party (BJP) to return to power at the Centre. Exit polls showed the incumbent government bagging close to 300 seats in the recently concluded Lok Sabha elections.

The S&P BSE Sensex rallied over 1,400 points, or 3.7 per cent to 39,352 levels, while the Nifty 50 index surged 421 points, or 3.7 per cent, to 11,828 levels at close.

Meanwhile, on the previous exit poll day -- May 13, 2014 -- the S&P BSE Sensex and Nifty50 were up 2.4 per cent each. On earlier exit poll dates, October 3, 1999 (down 1 per cent), May 10, 2004 (down 2 per cent) and May 13, 2009 (down 1 per cent), the benchmark indices had posted negative returns of up to 2 per cent, according to data compiled by Business Standard Research Bureau.

Predictions of the continuance of stable government with majority/near majority, analysts say, augurs well from a reforms and policy perspective, as it will remove a key overhang from the market narrative – the potential of a hung verdict and formation of a third front government with no major national party at the helm.

"If exit polls are correct and the NDA returns to power with a majority, then we would expect policy continuity. Rural reflation, infrastructure spending, streamlining of the goods and services tax, direct tax reforms and the consolidation of public sector banks are likely to be the key priorities. Fiscal consolidation is an objective, but will be a challenge in the absence of revenue mobilisation or a growth rebound," wrote Sonal Varma, managing director and chief India economist at Nomura in a recent co-authored report with Aurodeep Nandi.

According to sectoral classification, banking, capital goods, oil & gas, realty, metal, consumer durables, automobiles and utilities indices were up in the range of 2.5 per cent to 4 per cent on the BSE on Monday.

“Market was largely factoring in the return of the BJP-led NDA government. We could see a small rally after May 23 election results, if the outcome is in line with expectations. That said, the next government will have its task cut out given the ongoing economic slowdown and structural challenges of declining household savings rate and high fiscal deficit," wrote Sanjeev Prasad, executive director and co-head, Kotak Institutional Equities in a recent co-authored report with Sunita Baldawa and Anindya Bhowmik.

Among stocks, Bajaj Finance, Bajaj Finserv, HDFC Bank, Titan Company, UltraTech Cement and Kotak Mahindra Bank from the S&P BSE Sensex and Nifty 50 indices hit their respective all-time highs on Monday. DCB Bank, ICICI Lombard General Insurance, Maharashtra Scooters, PI Industries, PVR, Shree Cement and SRF are notable stocks from the Nifty 500 index that also hit their new high in intra-day deals.

“The Modi-led BJP government has had its failures in manufacturing in India outside of defence, building of 'Smart Cities' to take the load off Tier-I cities and distribute wealth, and on incentives for private sector recovery. We do not see these reviving even in case of a favourable election outcome. Our top picks, L&T, ABB, Voltas, KEI, NTPC, ConCor and Gateway have earnings visibility for the next 12-18 months, which should lead to upside even in the event of election volatility,” wrote Lavina Quadros, an equity analyst at Jefferies.