Mumbai/New Delhi: Indian equities on Tuesday rallied to their highest level in seven months on hopes that the National Democratic Alliance (NDA) would form the next government in New Delhi.
Investors have been especially worried about the prospect of a government that depends on its survival on the Communist parties that blocked economic reforms over the past five years, when they supported the government led by Manmohan Singh without joining it.
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The last leg of the closely fought national election will be over on Wednesday and the results will be announced on Saturday.
“The NDA’s equations have become increasingly favourable and the market would not like to miss the opportunity,” said Deven R. Choksey, managing director of Mumbai brokerage Kisan Ratilal Choksey Shares and Securities Pvt. Ltd. “With (the NDA’s) prospects getting brighter, there was a smart pullback as people built up positions.”
“There is speculation that the election will result in the formation of a stable government that excludes the Left,” said T.S. Harihar, senior vice-president at ICICI Securities Ltd.
Equities soared on a day when the government announced disappointing industrial production numbers for March. The 30-stock Sensex, India’s most widely tracked index, gained 475 points, or 4.07%, to close at 12,158. The broader Nifty went up 3.56% or 126.5 points to close at 3681.1. The sharp rise on Wednesday was in contrast to the mixed fortunes of other Asian markets. For instance, while Taiwan lost 3.2%, China’s Shenzhen composite index gained 2.6%.
The market mood was also affected by swirling rumours that the results of exit polls that pointed to an NDA victory had been leaked. At least three market participants told Mint that such rumours were doing the rounds on Wednesday afternoon. According to election Commission rules, exit polls— typically organized by media houses and independent psephologists to gauge voting patterns—can be published and telecast only after all phases of polling are completed on Wednesday.
“Short-term investors will trade on the exit polls. Those with a longer-term view will wait for the actual results to come out,” said Anand Shah, head of equities at Canara Robeco Mutual Fund.
“As long as a stable coalition comes to power, the impact on sentiment and activity is likely to be positive,” wrote Tushar Poddar, an economist with Goldman Sachs in an 11 May report on India’s elections.
Brokers said that a couple of foreign funds were also heavily buying on Tuesday, but Mint couldn’t ascertain the identity of these institutions. Overseas investors bought a net $37.1 million (Rs182.40 crore) of Indian stocks on 11 May, increasing their total equity purchases this year to $1.07 billion, according to the nation’s market regulator.
A stable government—which analysts typically define as one which is led by either the ruling Indian National Congress or the Bharatiya Janata Party and formed without the support of the Communist bloc—would revive a flagging economy even as it struggles with a large fiscal deficit. India’s industrial output fell at an annual rate of 2.3% in March, the third fall in four months and the fastest decline in 16 years, upsetting recent predictions of an early economic revival. Exports have dropped for six months in a row.
While actual exit poll numbers are awaited, both the incumbent and the opposition party are confident of winning the electoral race.
The Congress maintained that it was “absolutely confident of attaining significant numbers” and “dramatic increase in its tally”. Party spokesman Abhishek Singhvi said in New Delhi: “We will have twin goals. We will emerge not only as the single largest party but also as a stable coalition.”
The Congress leaders privately said that they were expecting a minimum 160-170 seats for the party and 220-230 for its allies. They also admit that the party has already opened channels for discussions with all the prospective allies and it would gain momentum once the last phase of polls is over on Wednesday.
“As no party is in a position to win as many seats to get a majority on its own, the President’s role is very crucial. In a hung Parliament, the President can use her wisdom to invite single largest party, pre-poll alliance or post-poll alliance. It could be a very complex situation,” the leader said.
The BJP was no less upbeat.
“As for now, BJP is confident that we will emerge as the single largest party and NDA would be the largest pre-poll alliance,” said M. Venkaiah Naidu, senior party leader in the national capital.
Naidu said the party was open to alliance with anyone who fulfils the two preconditions of adhering to the NDA agenda of governance and accepting L.K. Advani as its prime ministerial candidate.
However, he added: “We have not opened any official channel to discuss future alliances, however, there could be informal talk among leaders of various parties.”
Ashwin Ramarathinam and Reuters contributed to thisstory.