Mumbai: One day before the outcome of the 15th general election was to be announced, Indian equities rose to their sharpest pre-results levels since at least 1996 on hopes that one of the two major political alliances would form the next government.
Meanwhile, a straw poll of 19 brokers and fund managers conducted by Mint after the end of trading on Thursday showed that an overwhelming majority of the respondents believes that investors would be most comfortable with a government led by either the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) or the Congress-led United Progressive Alliance (UPA), especially the former.
The 30-stock Sensex, India’s bellwether index, soared 300.5 points, or 2.53%, to close at 12,173.42.
Favouring growth: The Bombay Stock Exchange building in Mumbai. At least half of the respondents to a Mint straw poll said a NDA-led government would take more steps to boost economic growth. Rajanish Kakade / AP
The broader 50- stock Nifty gained 78.2, or 2.18%, to close at 3,671.65.
Brokers said mutual funds and foreign institutional investors were warming up to buy Indian stocks. Foreign financial institutions, or FIIs, the main buyers in Indian equity markets, bought stocks worth $859 million (around Rs4,260 crore) this week, according to market regulator Securities and Exchange Board of India. They have bought equities worth $3.28 billion so far this fiscal.
“Based on exit poll results, the worst outcome looks unlikely,” said Devesh Kumar, managing director of Centrum Broking Pvt. Ltd, a local brokerage, referring to the likelihood of either the Congress or the BJP forming a government without involving the Left parties.
A Goldman Sachs analysis of exit poll results shows, on an average, the UPA is expected to bag 196 seats. It pegs the seats for NDA at 187 seats. Though both fall short of the 272 seats needed to gain a clear majority in the Lok Sabha, it puts the two main alliances in a good position to stake a claim to form the next government. To be sure, exit polls could go horribly wrong—as happened in 2004, when the UPA unexpectedly unseated the NDA.
In a 24 April note on the impact of elections of economic activity and markets, Goldman economists Tushar Poddar and Pranjul Bhandari said, “Fundamentals and global markets will be more important than elections as a driver of markets, unless there is an unstable coalition”. The two economists have studied market performance in eight election years since 1980.
The International Monetary Fund expects the world economy to shrink in 2009, the first such instance since World War II. And the Reserve Bank of India said on Thursday the 17 professional forecasters it polls every quarter on the Indian economy have cut their median growth forecasts for the current fiscal from 6% to 5.7%.
Exports have slid for the past seven straight months and industrial output has shrunk 2.3% in March, the fastest annual rate in at least 16 years.
“A combination with the Left could put reforms on the back-burner while a non-Congress/BJP coalition would have more implications for stability than policy,” wrote Rohini Malkani of Citigroup Global Markets Inc. in a 15 May report.
A Mint poll of 19 brokers and fund managers supports this thesis. At least half of those polled, or nine people, said they believed a NDA-led government would have a more favourable impact on policy and economy and take steps to boost growth.
“In the past, the NDA has demonstrated that (it) can take tough decisions. And going by the pre-election manifesto, the NDA’s (manifesto) seems to be far clearer and more appealing than that of the UPA,” said Manish Sonthalia, fund manager at Motilal Oswal Securities Ltd. “Whether all that’s set out in the agenda translates into actual action, only time will tell.”
A fund manager who did not want to be named, said the NDA was likely to accelerate the reforms process as they were unlikely to “be beholden to the Left”. The Left parties, who supported the current UPA for four years before they pulled out on differences over a nuclear deal with the US, want to limit foreign investments.
Eight other people polled by Mint said they didn’t care if either of the main coalitions came to power as both were well placed to boost economic growth. While two said they would prefer the UPA, none wanted to see a Third Front government. The Third Front is a coalition of the Left and other mainly regional parties.
“Any winning combination of the BJP or the Congress will be fine,” said Sanjay Sachdev, country manager and regional manager for fund management, South-East Asia, for Shinsei Bank. “The Third Front is not tried and tested, so we do not know what their policies would be and that leaves a certain element of uncertainty,” he added.
Ashwin Ramarathinam contributed to this story.