Sensex, Nifty set to hit new highs after BJP's 4-0 win in state polls
Indian stock markets are likely to hit record highs on Monday after the Bharatiya Janata Party pulled off a better-than-expected performance in recently-concluded state elections. The BJP cruised to landslide wins in Madhya Pradesh and Rajasthan, won a majority in Chhattisgarh and emerged as the single largest party in Delhi.
The BJP's strong performance comes months ahead of the general elections due in 2014 and will be seen as a positive for its prime ministerial candidate Narendra Modi, who is perceived by many investors as being more business-friendly.
"No doubt, there will be a gap-up opening tomorrow. The Nifty might take out the previous high of 6,357 and could even hit 6,400 levels," market analyst Sarvendra Srivastava told NDTV. A lot of smart money was riding on a BJP win and bulls might have an upper hand now, he added.
Foreign investors, who are the real drivers of Indian stocks, may continue to buy on hopes of a BJP win in the 2014 polls, analysts said. Markets tend to look for a strong, stable government and these results will likely make the market think that BJP could emerge as the lead party in the 2014 elections, Bank of America Merrill Lynch said in a report last week. A stable government would find it easier to undertake reforms, the report had noted.
Overseas investors were buyers of Rs 1,151 crore worth of shares on Thursday when the Sensex rose as much as 455 points in intraday trade. For the year, FIIs have bought equities worth Rs. 1 lakh crore.
Domestic brokerage Enam Financial's Vallabh Bhansali said markets don't have a preference for a Congress or BJP government, but a stable government. The market had complaints about the existing government because economic reforms were not moving, he said, adding that the BJP has given clarity about their leadership team which has helped them win over the market.
Caution ahead
Some analysts called for caution saying a rally based on the political outcome in four states could prove to be short term especially because a lot can happen in politics between now and the general elections in 2014.
Besides, inflation is still high and the country's growth continues to languish at the slowest pace in a decade. There is also no clarity about the timing of tapering of US stimulus, which is important for continuation of foreign funds into Indian equities.
Gajendra Nagpal, CEO and founder of Augment Financial Services, said markets would open higher on Monday, but added that some profit-booking may also happen at higher levels.
"On a broader basis, at current levels one should be cautious... The short-term euphoria may also be used to book-profits in certain sectors," Inventure Growth and Securities research head Milan Bavishi said.
Fact check
The Sensex closed at 20,996.53 on Friday, while the broader Nifty closed at 6,259.90.
(With inputs from PTI)
