Exit polls charge up stocks, rupee

Sensex, Nifty surge, but shed some of their gains

The exit poll projections that the Bharatiya Janata Party (BJP) could win in four of the five states where Assembly elections concluded on Wednesday came as a shot in the arm for Indian shares and the rupee on Thursday. Foreign institutional investors (FIIs) boosted purchase of local shares, while NSE’s volatility index (VIX), a measure for the market’s perception of near-term risks, plunged on hopes BJP would turn out to be the winner when the actual poll results were announced on Sunday.

The benchmark indices, however, could not hold on to early gains, as investors and traders booked profits, judging that the recent gains were excessive. Weakness in other Asian markets ahead of US labour report also put a lid on stock gains in India.

“Markets have already factored in a BJP victory in the state elections. So, once the actual election results are out, the reaction could be moderate and there could also be some profit booking,” said Motilal Oswal Financial Services Chairman Motilal Oswal.

BSE’s Sensex rose 249.10 points, or 1.20 per cent, over its previous close to end at 20,957.81, off the day’s high of 21,165.60. NSE’s Nifty gained 80.15 points, or 1.30 per cent, to close the day at 6,241.10, after touching a high of 6,300.55. Banking, real estate and capital goods stocks led the upside.

FIIs net-bought shares worth Rs 1,151.51 crore on Thursday, while their domestic peers sold to the tune of Rs 674.02 crore, according to provisional data. Buying by overseas investors was the highest since November 14.

VIX plunged 8.6 per cent to 21.68, as exit polls the previous evening alleviated uncertainty surrounding the state elections. Market participants are interpreting the exit polls’ results as an indication that the BJP wave, under its PM candidate Narendra Modi, is gaining momentum across the country.

The general consensus on Dalal Street is that a BJP victory in these state elections will set the tone for the party’s show in April’s general elections, considered one of the biggest triggers for the markets.

“The market is looking for a strong, stable government after the 2014 elections and it seems these results will likely make the market think BJP may emerge as the lead party in the 2014 polls,” said Jyotivardhan Jaipuria, MD & research head, Bank of America Merrill Lynch.

Such expectations also lifted the rupee, which hit a five-week high on Thursday, amid strong inflows. The sentiment in the foreign exchange market was also boosted by data that showed the country’s current account deficit narrowing to 1.2 per cent of GDP in the July-September quarter — and likely to be within the Reserve Bank’s estimate of less than three per cent for 2013-14 — implying marcoeconomic worries might be bottoming out.

The rupee opened stronger, at 61.76 a dollar, and went on to touch a high of 61.54 a dollar in intra-day trading. But it gave up some of its gains due to dollar demand from oil companies and closed at 61.77 a dollar, compared with its previous close of 62.06.

Earlier this week, RBI had said the special dollar window for oil companies was now closed and oil firms were to now source their entire demand from the market. It had also added such a facility could be re-opened ‘on rare days’, when there was a pronounced spurt in dollar demand in the foreign exchange market.

However, the upside may be capped, as fear of US Fed’s taper of its bond-buying programme could resurface. A Reuters poll of analysts showed the rupee’s strength might dissipate soon on tapering concerns, and the currency might weaken to 64 a dollar by May.

“Though few US data points are expected in the next few days, I feel the Fed’s tapering may not happen in December. They may wait for Janet Yellen to take over and assess the situation before they go for tapering,” said N S Venkatesh, IDBI Bank’s chief general manager & head of treasury and chairman of the Fixed Income Money Market and Derivatives Association of India. “I see the rupee at 61 a dollar in a month from now.”