Exit polls boost markets; all eyes on final outcome

The stock markets gained on Friday, defying weak global cues, after exit polls indicated a clear mandate for the Bharatiya Janata Party (BJP) in the Gujarat and Himachal Pradesh state elections. The benchmark Sensex ended 216 points, or 0.65 per cent higher at 33,462.97, while the Nifty 50 index added 81 points, or 0.8 per cent at 10,333.25.

The rupee strengthened to 64.15 versus the dollar from 64.34 on Thursday, while the benchmark 10-year bond yield eased to 7.12 per cent.

A decisive victory in the state elections is key for the BJP sustaining momentum ahead of the general elections in 2019. The Street is rooting for the ruling party as it would mean continuation of the reforms agenda.

The Sensex at one point was up as much as 375 points, or 1.13 per cent but lost steam as some traders took profits. The final results are due on Monday.

“A potentially convincing (110+ seats) win for the BJP in Gujarat — a state perceived to be the most impacted by the goods and services tax/demonetisation — will boost market sentiment.  A weaker-than-expected performance could be interpreted negatively,” said CLSA analysts Mahesh Nandurkar, Abhinav Sinha and Alok Srivastava in a note.

The forecast is that the BJP would win 99-146 seats in the 182-seat legislature, according to five surveys published after voting closed on Thursday. That’s higher than the 92 needed for a majority and compares with the 115 the BJP won in the previous election in 2012, when Prime Minister Narendra Modi was still leading the state. The main opposition party, the Congress, is projected to win 36-82 seats before the official tally on Monday.

“A victory for the BJP will be received well by the market while a surprise defeat (against the forecasts of the exit polls) would be a large negative surprise for the market. In the former case, we see a modest rally and in the latter, a moderate correction as the market will also start focusing on India’s weakening macro position,” said Sanjeev Prasad, co-head and managing director, Kotak Institutional Equities.

Both the Sensex and the Nifty gained 0.6 per cent during the week, their second straight weekly gain. Experts say that after the results of the Gujarat elections, the focus will shift to the Union Budget.

“Market has already reacted to exit polls so we don’t expect a large gap opening up on the results day on Monday. Investors will now concentrate on what the finance minister offers in the federal Budget,” said Gaurang Shah, head investment strategist at Geojit Financial Services.

Most global markets traded weak on Friday, with the MSCI Asia Pacific trading nearly half a per cent lower, amid uncertainty over proposed tax changes in the US.

All but one of the 19 sectoral sub-indexes compiled by the BSE gained, with a gauge of metal stocks gaining the most. Automaker Mahindra & Mahindra gained 3.6 per cent, the best among Sensex components, followed by Coal India, which gained three per cent. Dr Reddy’s and HDFC Bank gained around two per cent each.