Markets cheer state election outcome, Sensex gains 196pts

Markets rallied over 1% as they cheered the ruling congress party’s ally (Trinamool Congress) victory in the key state of West Bengal which may strengthen the image of the graft tainted government.

Markets opened in the red and touched a low of 5,472 in opening trades, but quickly turned positive in the morning session as news of preliminary state election polls unfolded. Mamata Banerjee led Trinamool congress victory in West Bengal provided a ray of hope to the investors that economic reforms which were put on the back seat may take off. The Nifty crawled upwards and touched a high of 5,605. However, profit booking during the last leg of the trading session caused the index to give up partial gains. The S&P CNX Nifty closed at 5,545, up 59 points and the Sensex ended at 18,531, up 196 points. For the week both the bechmark indices ended flat.

Trinamool Congress won 294 seats in West Bengal assembly election, ousting the Left Front led by Communist Party of India after 34 years of rule, poll results in Assam and Kerala also favored Congress. However Jayalalithaa-led AIADMK (All India Anna Dravida Munnetra Kazhagamg) victorty in Tamil Nadu and Puducherry was a setback for the Congress.

Analysts do not expect the state elections to change the trajectory of the markets and said that Friday’s rally was purely driven by short covering. Analysts feel that high inflation, interest rates and elevated raw material prices will continue to weigh on the markets. Navneet Daga, Derivative Analyst from KR Choksey Securities said, “This rally will be short lived as lots of shorts were built up in the system, elections results were a surprise and the traders had to buy to cover up the shorts.”

Broader markets underperformed the benchmark. BSE mid-cap index gained 0.8% to 18,531 while small-cap index was up 0.4% to 8,368.

All the sectoral indices were in the green, with the FMCG index rallying 2.3% to 3,803. BSE healthcare, auto and bankex were also in the green.

FMCG heavyweight, ITC, jumped 3.3% to Rs 190. Hindustan Unilever gained 2% to Rs 307. Among other FMCG gainers were Tata Global, Nestle, Marico and Colgate Palmolive.

Metal indices gained 1.5% on bargain hunting. JSW Steel jumped 2.7% to Rs 935. Jindal Steel and Bhushan Steel added over 2% each. Sesa Goa, Tata Steel, Hindalco and Sail advanced 1-2% each in trades today.

Among the other Sensex gainers were Jaiprakash Associates, Hero Honda, Bajaj Auto, Wipro and DLF. Heavyweight also moved up. ICICI Bank added 2% while Reliance was up 0.5% in trades.

Dr Reddy's rallied 3.3% to Rs 1,655 after reporting better-than-expected 57% growth in consolidated net profit at Rs 310 crore for the quarter ended March 2011 over the corresponding quarter of the previous year under International Financial Reporting Standards (IFRS). Revenues grew 23% at Rs 2,020 crore on a year-on-year basis.

Emmsons International and Gayatri Projects also advanced on strong Q4 performances. Shanti Gears moved up 10% at Rs 38.15 after reporting a 85% jump in net profit to Rs 9.52 crore for the second quarter ended March 2011 over the previous year.

BSE market breadth was positive with 1,580 stocks advancing and 1,187 stocks declining.