UP election results 2017: BJP win to give fresh legs to stock market rally, say analysts
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Mumbai: With early trens in the assembly election results showing a massive victory for the Bharatiya Janata Party (BJP) in Uttar Pradesh, analysts expect investors to cheer when Indian stocks open for trading on Tuesday after a long weekend.
A victory for BJP in Uttar Pradesh, India’s largest state, will be seen as an affirmation of Prime Minister Modi’s policies especially since the assembly polls were held in the backdrop of the controversial invalidation of 86% of the country’s currency notes in November.
Indeed, hopes of a BJP victory and the positive sentiment around measures such as the quick implementation of the goods and services tax have helped Indian stocks rally at a time when corporate earnings growth is nothing to write home about. So far, this year, the Sensex and the Nifty have gained around 9% each, slightly better than the 7.4% gains for MSCI Emerging Markets Index.
A BJP victory will also give legs to the rally when it is all but certain that the US Federal Reserve will hike interest rates when it meets on 14-15 March. Higher US interest rates will make the dollar stronger and emerging market assets less attractive. Foreign institutional investors have pumped in $2 billion so far this year after withdrawing $4.6 billion in the last three months of 2016.
That said, some experts also cautioned about rising valuations and the fact that this rally has been entirely driven by easy money.
Here’s what a cross-section of analysts Mint spoke to had to say about the market reaction to the assembly poll results:
Ambareesh Baliga, independent market analyst
BJP has a landslide victory in UP, which wasn’t expected. This is going to be a big positive surprise. Although, there are losses in Goa, market is going to cheers the victory in UP. Markets had discounted to an extent that Modi will win UP, but since results are totally black and white, we could even see the market forming a new high in days to come, even as valuations are already rich. That said, Monday is a holiday. So, usually when there is gap, such euphoria tends to get cushioned to a bit. Post elections, the market will focus on bigger events lined up like Federal Reserve action on rates, monsoon, March quarter results and GST implementation. The markets tend to put behind bigger events quite faster as was seen in Brexit, US elections.
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U.R. Bhat, managing director, Dalton Capital Advisors India
Markets will cheer a bit, but it won’t be more than 24-48 hours. After that there is the interest rate hike in the US. The scale of the victory is higher than what was earlier anticipated. It is a reiteration of his (Prime Minister Modi’s) economic policy and political philosophy. To that extent, the PM will get stronger and get more confidence to do what he wants.
Vaibhav Sanghavi, co-CEO , Avendus Capital Public Markets Alternative Strategies LLP.
There is a clean sweep by BJP in UP. We need to see how Manipur and Goa shape up.
There will be a positive opening on the back of these numbers. Having said that, valuations will catch up at some point.
Vikas Khemani, president and CEO, Edelweiss Securities
This is definitely a sentimental positive. There are lots of foreign investors sitting in the sidelines trying to get a sense of 2019 (the next Lok Sabha polls). This will give them more comfort. The results will also embolden the government to carry out reforms. With this, they are on the way to get majority in Rajya Sabha too; legislative majority in both houses will give them the ability to push things through easily. In that sense, it is very good for the economy and them markets.
Sanjeev Bhasin, executive vice-president of markets and corporate affairs at IIFL Ltd
We are very bullish on the markets. It provides a precursor to the 2019 elections, and it kind of indicates that the TINA (there is no alternative) factor is not at play now. Reforms and new agenda will fructify from here, and economic growth will only get better . Valuations are expensive but can live with that for a while until earnings catch up. It also gives a message to long-term investors that political stability is here to stay.
Harsha Upadhyaya, chief investment officer (CIO)-equity at Kotak Mahindra Asset Management Co. Ltd.
The clear mandate for BJP in UP is a very big positive. I expect market to cheers this win. The headline valuations may seem rich, but broader market is not so expensive. Gradually, with UP and few other states in their hold, It gives them an edge in Rajya Sabha over a period of time. Some of the reforms which are stuck, could now see light of the day.
Jimeet Modi, CEO, SAMCO Securities
The markets were in a tight range and the BJP win in UP will push the markets beyond 8,800-9,000 range to touch record high soon. Federal Reserve interest action may not impact domestic markets, as it looks like a “non-event” for India. Indian markets may react negatively if Fed raise interest rates but it will be for very short term. As the markets continue to rally investors need to keep an eye on Euro zone disintegration and China growth in second half of 2017.
Navneet Munot, chief investment officer, SBI Mutual Fund
BJP’s win in UP will be taken positively by the market. I think the reforms agenda should continue as this win also indicated that the demonetisation exercise is well received by the people. Markets may record a new high on the back of strong liquidity flows. However, valuations are turning rich too.
Ajay Bodke, chief executive and chief portfolio manager at brokerage Prabhudas Lilladher Pvt. Ltd
From a long-term impact, BJP’s clear win in UP, would embolden the Modi government to accelerate long-pending structural reforms to kick start economic growth.
His emphasis on reforms benefitting poor and masses, has clearly struck an emotional chord with the voters from a poor man’s perspective, such reforms matter more than GST and the likes.
Market will give a thumbs up to this, and we may see a 100-150 points upside in Nifty on Tuesday. Valuations are no doubt expensive, and corporate earnings needs to catch up. We need to closely watch fourth quarter numbers to see if the earnings growth comes back with a roar.