Bihar reaction overdone, time to buy: Analysts

Market players say there is no reason to fear that the govt will change course

A knee-jerk reaction to Bihar poll outcome saw Sensex and Nifty slip 2.3 per cent each in intra-day deals. The markets recovered partially by the time trade closed. The Sensex ended 144 points, or 0.6 per cent, lower at 26,121. The Nifty closed 39 points, or 0.5 per cent, lower at 7,915.

Analysts say the markets over-reacted to the outcome of the Bihar elections in intra-day deals and Monday's fall is a good opportunity to buy from a medium- to long-term perspective. Considering that this was a state election and nothing changes at the Centre, markets over the medium to long term will be driven by policy changes and reforms driven from the Centre, they suggest.

TIME TO BOTTOM-FISH

• Analysts say markets over-reacted to poll outcome
• They say outcome is below market expectations
• Analysts exude optimism on the road ahead for markets

"I think the reaction is overdone and I expect a bounce-back going ahead. Bihar politics cannot change the fact that (prime minister Narendra) Modi will be around for another three-and-a-half years and can still implement key reforms. The GST (goods and services tax) Bill may be difficult to implement, but the economy has managed to grow 68 years without the GST and might as well grow for another three-and-a-half years without it," said U R Bhat, managing director, Dalton Capital Advisors.

"Nifty has significant support at 7,500 and I don't see the index going anywhere near there. Buying interest should emerge around 7,750-7,800 levels. The fall presents a good chance for long-term investors to bottom-fish. Sector-wise, I think private sector banks, automobiles, information technology, and pharma are some themes one should look at," he adds.

Hitesh Agarwal, head of research at Reliance Securities, too, feels the Bihar election result has not gone the way the market would have liked it to. Despite this, he remains optimistic on the road ahead for the markets.

"We remain positive on these to continue broadly, despite certain challenges that the ruling party will continue to face on important legislative reforms like the land acquisition Bill, where consensus politics will play a bigger role. Further, with the market having already corrected by around five per cent in the past couple of weeks, the downside could be limited in the near term. Thus, investors can look for bargains at lower levels with a medium-term horizon," he says.

Economic fundamentals remain strong and the poll outcome does not change that, says Ajay Bodke, chief executive officer and chief portfolio manager, PMS, Prabhudas Lilladher Group. He recommends interest-rate-sensitive stocks and stocks of companies in the information technology and pharma sectors that have exposure to the US economy, which is likely to do well.

Economic outlook
Fitch Ratings does not feel the need to change its view on the medium-term economic outlook for India, against the backdrop of the Bihar election outcome. The loss may complicate politics for the Centre, Fitch says, but it does not expect major implications for the economy. "The poll results are not likely to affect decisions by foreign investors in other states and a big win for the Bharatiya Janata Party in Bihar would not have led to sufficient support in the Rajya Sabha anytime soon anyway. With continued opposition, the government will likely continue to try and pass legislation via ad-hoc political deals, and if that does not work, it may continue to resort to the implementation of reforms at the state level," points out Thomas Rookmaaker, director in Fitch Ratings' Asia-Pacific Sovereigns team. "While the opposition to some big-ticket reforms, most prominently the land acquisition Bill and the GST, has been substantial, the government has gradually rolled out a large number of initiatives and there is no indication it would change course," Rookmaaker adds.