Mumbai: India's benchmark equity indices -- Sensex and Nifty -- on Monday surged 3.8% each, the biggest single day gain since May 2009, after many exit polls showed that the Narendra Modi-led government will return to power with majority for a second term.
The Sensex rose 3.75% or 1421.90 points, its biggest rise since 16 May 2009, to close at 39,352.90 points on Monday, while the NSE Nifty 50 index gained 3.69% or 421.10 points to 11,828.25 points. So far this year, the Sensex has risen 9.14%, while the Nifty has advanced 9%.
"Exit polls are pointing to a comfortable victory for the BJP-led NDA alliance. Exit polls have a mixed record, so the real deal is still May 23 when actual results will be available. That said, given what is priced in, stocks will likely rally on the back of the exit polls," said Morgan Stanley in a 19 May report.
The Bharatiya Janata Party-led National Democratic Alliance will likely win over 300 seats in India’s 543-seat lower house, many exit polls showed. The Congress-led United Progressive Alliance opposition will win an estimated 132 seats, according to the exit polls.
This would be the first time that BJP would form a government twice in a row at the centre. This is significant because so far only the Congress has managed to retain power for consecutive terms.
"If the exit polls are right, Indian equities should stage a robust rally. For the broader market, the chances are further skewed to an upward move. Of course, if the actual results are a fragmented verdict where the largest party in the House has fewer than 160 seats, equities could take a meaningful hit," Morgan Stanley report added.
Brokerage firm Jefferies India sees 23 May as a binary event and a decisive majority for the current government (NDA) would be viewed as the better outcome. Defence, roads and renewable energy sectors saw a pick-up in project announcements and execution after 2014 election results. Industrial companies’ order flow and project execution have improved, but 2019 has not seen the pre-election rally of 2014.
“We expect a strong post-election rally if the current government returns, as the election has been an overhang," it said.