Indian equities and the rupee climbed after most exit polls showed Prime Minister Narendra Modi’s party leading in the race for power in the key electorate state of Uttar Pradesh.
Four of the six polls on Thursday predicted Modi’s Bharatiya Janata Party will emerge the single largest party, though falling short of the 202 seats needed for majority. Two others, including one that correctly forecast Modi sweeping the 2014 national elections, expect a decisive victory for his party.
The S&P BSE Sensex rose 0.3% at 10.29 am in Mumbai, leaving the gauge of India’s top 30 companies valued at 20 times one-year forward earnings. That’s higher than the five-year average multiple of 16.1. The rupee added as much as 0.%1to 66.67 per dollar.
Sovereign bonds fell, with the yield on the benchmark 6.97% notes due September 2026 climbing two basis points to 6.87%.
“The move is sentiment-led and doesn’t change the fundamentals for the market,” said Chokkalingam G, Mumbai-based managing director of Equinomics Research & Advisory Pvt. Ltd. “Even if the actual numbers come around what is predicted by exit polls, we don’t expect the enthusiasm to last beyond one or two sessions. The valuations are stretched.”
With a population of 204 million, Uttar Pradesh sends more lawmakers than any other state to both houses of Parliament. A win will test the acceptance of Modi’s 8 November decision to remove high-value banknotes from circulation in an attempt to curb corruption. A strong win will also help his bid for a second term in the national poll in 2019.
A victory “will likely be viewed as an endorsement of his policies so far and this result will be seen as encouragement to him to continue on the path he has been following,” Tony Hann, a portfolio manager at Blackfriars Asset Management, said by e-mail. “I suspect we will see discussion around the likelihood of him now securing a second term.”
Should the BJP fall short of a majority, it could spur a period of political bargaining to establish a government in one of India’s poorest states. At stake for Modi is his economic program and his ability to push difficult legislation such as land and labor reforms through Parliament. Bloomberg