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Brokerages upbeat on exit polls but advise caution

10 top brokerages and research houses interpret the outcome of exit polls and suggest investing strategies

Puneet Wadhwa  |  Mumbai 

Exit poll released post market hours on Monday points to the formation of a Narendra Modi–led National Democratic Alliance (NDA) government at the centre. The have already seen a meteoric rise since the past few months in this hope with the foreign institutional investors investing upwards of $5 billion in the last three months.

Here is a compilation of what top Indian and foreign brokerages and research houses interpret from the exit poll outcome. Also check out the investing strategies in the their top recommendations.

Barclays

Ahead of India’s general election results on 16 May 2014, equities have experienced a major rally – the NIFTY is up nearly 11% in the past three months – despite the weak economy and a nondescript earnings season. A stable business-friendly government may usher in policy reforms and faster economic growth medium term, but we believe that the focus could return to fundamentals after the likely near-term volatility from the election verdict is digested.


Nomura

We view exit polls with some caution based on the results in 2004 and 2009, and especially in this case where there appears to be a differential between them and the majority of pre-election opinion polls. Additionally, the bar to exceed expectations on the final counting day (16 May) has moved even higher.

However, notwithstanding a possible knee-jerk market reaction on 16 May, the exit polls confirm and strengthen our baseline expectation of a stable NDA-led government, which is a positive outcome, in our view.

This, along with a gradual improvement in the growth outlook in 2015, a credible central bank and easing macro-imbalances bode well for India’s medium-term economic prospects. We expect real GDP growth to rise to 5.0% in FY15 and further to 5.7% in FY16 from 4.7% y-o-y in FY14 (year ending March 2014).


Bank of America- Merrill Lynch

We see two broad implications from the exit polls: 1. These exit polls reiterate that BJP-led NDA continues to be the frontrunner to form the next Govt. Barring the outliers, broadly the polls suggest the NDA could win 250 to 290 seats with the BJP being the core at 220 to 250 seats. Most polls indicate that the NDA will get a majority on its own. 2. The exit poll results are marginally ahead of the results of earlier opinion polls. Thus, media speculation that the BJP had lost support over the past 2-3 weeks may prove unfounded.

The market has rallied 5% over the past 2 days. Near term, the market is discounting a lot of good and the margin for error appears low if actual results belie market expectations. However, we think the will trade at a premium to long term average through 2014 as investors anticipate a spate of reforms that lead to a turn in the economic cycle.

Our index target now provides an 8% return by year-end in a stable government scenario. Large-cap Buys: Maruti, ICICI Bank, SBI, ONGC, JPA, Ultratech; Mid-cap Buys: Eicher, Motherson, Yes Bk, Aurobindo; Underperforms: HUL, Tata Steel, Powergrid Credit Suisse

With near unanimity, exit polls forecast a strong victory for the Narendra Modi-led NDA. All but one suggest a majority for the NDA, and a large tally for the BJP, implying the BJP would retain most of the economically relevant ministries. While the national totals seem to be in a relatively narrow range, the state-level numbers that are adding up to the national totals vary widely across polls. While some of the polls (e.g., CSDS) are indeed expected to have inaccuracies at the state level that cancel out at the national level, that can't be said for most of the polls. The market may stay supported for now, but 16 May may still throw surprises. One - three month volatility aside, we stay cautious on cyclicals.


UBS Securities

The India VIX has gone up to 37.1 (it had touched a high of 56 in May’09) from below 30 a month back – indicating election related volatility. FIIs have been strong buyers in Indian equities with the annualised 2014 net buying close to that in 2013. A positive election outcome may not yet be priced in. In our view, a more euphoric sentiment among investors (NDA near or more than 272) would likely imply higher multiples, though sustainability would depend on actual delivery in policymaking hopes. Indicative levels for Nifty in this euphoric scenario, based on +1 standard deviation over 5-year averages and 15% earnings growth expectations for FY15 would be near 7800. Our preferred cyclical picks remain L&T, BHEL, ICICI Bank, Shriram Transport, and LIC Housing Finance. Please refer to "Politics & – Toolkit for an eventful May” dated 5th May 2014.


Motilal Oswal Securities The Exit Polls for 2014 General Elections accord a clear majority to BJP-led NDA. This confirms the momentum shown in successive opinion polls by various agencies since Jul-13. The latest Exit Poll trend shows that NDA would get an absolute majority on their own by more than doubling their 2009 Lok Sabha tally of 141 to 285. A decisive mandate would obviate the need for hunt for allies providing much needed stability to the government. This would also pave the way for ushering in enduring reforms a significant positive for the market.


Angel Broking

Exit polls have predicted the NDA to be the largest pre-poll formation to form the next government in Delhi which is in line with market’s expectations. However in view of the rally to historic highs, the possibility of an up move from these levels would depend on the incremental seats that can be won by the NDA over the consensus exit poll range of 257-280 Aditya Birla Money

Exit polls indicate possibility of a stable government at the Centre. In the initial jubilation surrounding a new government, the markets are expected to see a swift rise. As market gets ready for a life beyond May 16th, valuations are expected to turn expensive in absence of earnings support and remain expensive during the course of the year. Cyclicals and Banks will continue to remain in focus. Budget and the ability of the new government to address the policy paralysis and kick start the investment cycle will have major bearing on the extent of investor optimism in the market place. We believe that the long term bullish trend is firmly in place and investors should use any short term volatilities to invest in the market with a long term orientation.


J K Jain, head of research, Karvy Stock Broking

Markets are rallying based on expectations that NDA will form the government but it could respond differently post the announcement of election results which could present any of the three possible scenarios - Scenario 1: NDA getting above 260 seats , Scenario 2: NDA getting around 220 seats and Scenario 3: NDA getting less than 200 seats. We are of the opinion that Nifty could gain over 15% (7900-8000) in the next 6-9 months if the scenario 1 pans out, Nifty could move within 6300-7300 range in the next 3 months under the scenario 2 whereas Nifty could correct over 15-20%( around 5500) in the next 3-6 months if the scenario 3 occurs.


Harsha Upadhyaya, Chief Investment Officer (Equity), Kotak Mutual Fund

Once the election results are announced, investor focus is likely to shift towards composition of the new government and likely policy initiatives in the run-up to the budget. Given reasonable valuations, expected improvement in economic fundamentals and corporate earnings trajectory, we expect equities to provide decent returns even from current levels

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First Published: Tue, May 13 2014. 15:23 IST
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