Markets at all-time highs on exit polls

Buying frenzy continues after polls project a Modi win

The already charged Indian markets got a further leg-up after exit polls showed a decisive election win for the Narendra Modi-led Bharatiya Janata Party (BJP), sending the benchmark indices to yet another record close.

The Sensex added another 320 points to its 1,200-point two-day rally to end at 23,871.23 on Tuesday. The index, however, closed almost 200 points lower from its day's high of 24,068.94 after some investors took money off the table, following a sharp eight per cent rise in only three days.

The National Stock Exchange’s benchmark Nifty gained 1.35 per cent or 94.5 points, to close at 7.108.75. The 50-share blue-chips index has added 450 points or eight per cent in three straight trading sessions as investors, especially foreign institutional investors (FIIs), tried to factor in the victory of the more business-friendly BJP.

Stocks could drop at least five per cent if the actual outcome belies market expectations, while they could rise another five to 10 per cent if the election results are in line with these, said analysts. Analysts said the market had been rallying despite a fragile economy and lacklustre corporate earnings, on hopes of a turnaround. Investors are pinning hopes that the Modi-led BJP would usher in policy reforms and faster economic growth in the medium term, they said.

FIIs, who bought Rs 1,200 crore in each of the previous two trading sessions, pumped in another Rs 2,000 crore into stocks. Domestic investors, however, sold shares worth Rs 650 crore on Tuesday.

State-owned Bharat Heavy Electricals and Oil & Natural Gas Corporation were among the major gainers among index stocks. Hero MotoCorp and Reliance Industries also saw sharp upticks.

Experts said the sharp run-up had left the market vulnerable to any disappointment in the election results. The Indian market is already up nearly 13 per cent in 2014, beating peers such as Brazil, Russia and China, led by robust foreign flows of nearly $6 billion.

The markets will be re-rated if the BJP-led coalition gets an absolute majority, said Macquarie in a report. CLSA said the market could remain in check in the near term, as the new government might face an uphill task in managing inflation and the fiscal deficit.