Poll sees Sensex at 23,000 in post-election high

Reuters poll forecasts index will hit 24,500 by the year-end; FIIs will continue buying shares; expectations of BJP returning to power fuel bullish sentiment

The BSE Sensex is forecast to continue setting new record highs this year as foreign capital is lured into the market, especially if general elections return the supposedly business-friendly opposition Bharatiya Janata Party (BJP) to power, a Reuters poll found on Thursday.

The BSE Sensex hit a life-time high of 22,040.72 on Tuesday but the poll of 23 equity analysts, taken in the past week, forecast the index to rise further to 23,000 by the end of June.

It is then expected to hit 24,500 by the end of 2014, a 12 per cent gain from Wednesday’s close of 21,832.86. The Sensex has risen three per cent this year, with foreign investors pouring in nearly $2 billion after ploughing in more than $18 billion last year.

Analysts expect foreign investors to continue buying Indian shares in the run-up to the world’s largest democracy going to the polls in April and May.

“The market will keep going up until the (election) results are announced and the euphoria will last for a month or two after, until the budget is announced where people expect big bang reforms,” said Madan Sabnavis, chief economist at CARE Ratings in Mumbai.

All but one of the 19 strategists polled expected the Sensex to rally in anticipation of reforms and draw further overseas funds if, as is widely expected, the opposition BJP wins the election.

However, 13 of the 19 strategists expect the index to change little or fall if the ruling Congress Party gains a majority. Only six said the index will rise in such a scenario.

“Since the market is fairly valued, a badly fractured election verdict will result in a selloff and a market crash,” said V K Vijayakumar, investment strategist at Geojit BNP Paribas, adding a coalition led by the BJP would likely extend the recent rally.

The current Congress-led coalition has been widely criticised for its inaction in pushing through key reforms, which has hurt economic growth and investor sentiment.

Analysts also attributed the expected rally in Indian stocks to a slight improvement in the outlook for inflation and fiscal balances.

On Tuesday, Goldman Sachs upgraded its rating on Indian shares to “overweight” from “marketweight”, as external vulnerabilities have reduced and noted a potential for further gains ahead of elections.

Most emerging market stocks took a hit in May when the US Federal Reserve first hinted at tapering its monthly bond purchases but have consolidated since then, despite the Fed rolling back its stimulus from January.

“We believe emerging markets look attractive as compared to developed markets in terms of valuations,” said Deven Choksey, chief executive of broking firm KR Choksey in Mumbai.

Sensex ends lower; bank stocks down
The BSE Sensex fell on Thursday, retreating further from record highs hit at the start of the week, on worries US interest rates would rise sooner than expected and dent the appeal of higher-yielding emerging markets. Recent outperforming blue-chips such as ICICI Bank and ITC were among the leading losers after strong gains this month had sent the BSE and the NSE indexes to record highs on Tuesday. Although India has largely been immune to global risk factors this month due to continued strong buying, earlier-than-expected US rate increases  could reduce the appeal of emerging markets for funds overseas. The Sensex fell 0.42 per cent to 21,740.09, off its record high of 22,040.72 hit on Tuesday. The Nifty closed 0.63 per cent lower at 6,483.10, away from its record high of 6,574.95 touched on Tuesday.