Equity markets are likely to extend gains after most exit polls showed Narendra Modi retaining power with a comfortable majority in the Lok Sabha elections 2019. The benchmark Sensex and Nifty could gain between 1 per cent and 2 per cent on Monday, said market players, adding that the gains will be capped as investors will wait for the actual outcome due later during the week (May 23).
The benchmark Sensex on Friday had posted its second-biggest single-day gain of 2019, ahead of the exit polls in anticipation of a favourable poll outcome. The Sensex had ended at 37,931, up 537 points, or 1.44 per cent, while the Nifty50 had rallied 150 points, or 1.33 per cent, to close at 11,407.
Andrew Holland, chief executive officer, Avendus Capital Public Markets Alternate Strategies, said the National Democratic Alliance (NDA) getting a majority will trigger a ‘relief rally’.
“Markets were concerned that Congress’ pro-farmer and rural-focused policies could have hurt the fiscal deficit. A messy federal coalition, too, won’t be seen favourably by the markets because it wouldn’t have been perceived as stable,” said Holland.
In 2014, the markets had gained 1.4 per cent a day after the exit polls, which had then indicated the BJP-led NDA would sweep the polls.
U R Bhat, MD, Dalton Capital Advisors, said the Nifty could move to 11,800-12,000-levels as exit polls have indicated there will be continuity in the regime.
Experts point out that elections have only short-term bearing on the market and in the long run, the fortunes are more linked to the economic and earnings growth.
“Based on analysis of elections over the last 30 years, our view is that election results matter for the first one month, and after that, the more fundamental issues like corporate profitability and economic growth gain prominence,” said Jyoti Jaipuria, founder, Valentis Advisors.
Jaipuria cited the example of 2004, when the markets had tanked after the NDA government lost the elections. However, the full-term of the Congress-led United Progressive Alliance-1 was one of the best ever.
The election results are coming amid a weak global backdrop due to the flare-up in trade tensions between the US and China. Most markets have dropped in May, amid risk aversion among foreign portfolio investors (FPIs).
Indian market, too, has declined as much as 5 per cent this month before Friday’s pullback. In the past eight trading sessions, FPIs have pulled out Rs 8,500 crore from the Indian markets. Besides global headwinds, deteriorating macroeconomic fundamentals, too, have been weighing on investment sentiment.
“Once the election-related dust settles, the market will quickly go back to the fundamentals. The macro picture isn’t very great at the moment,” said Holland.