Poll rally done, Sensex seeks global cues

With the conclusion of the elections, the stock markets are back to taking their cues from the state of the economy and global developments. The Sensex, which touched the 40,000-mark, and Nifty, which rose to the 12,000-level, gave up significant gains and closed in the negative zone. Market experts told BusinessLine that markets would now look to the Budget session and global developments such as the US-China trade war and US-Iran tensions.

The Sensex and the Nifty had gained more than 5 per cent in the rally this week after exit polls had predicted a thumping victory for the BJP. The market rally came mainly on the back of the fact that the Narendra Modi-led government was the only one in 48 years to have returned to power with such a high number of seats for a second term — after Indira Gandhi in 1971.

On Thursday, as the exit poll prediction came true, the benchmark indices rose to record-high levels, but gave up all the gains and closed in the negative on the back of profit-booking as valuations looked stretched. The Sensex, which made a high of 40,124, closed at 38,811, down 0.76 per cent or 298 points. The Nifty touched 12,041, but fell back to 11,657 and closed with loss of 80 points or 0.69 per cent.

Market trading could be tense on Friday as key indices in the US fell by nearly 1.5 per cent as the trade spat between the US and China deepened over the issue of Huawei. The US is investigating China’s biggest telecom operator on charges that it spied for the Chinese government. Apart from the US, key indices in Europe were trading lower by 1.5 to 2 per cent.

“We expect markets to consolidate with an upward bias. Economic challenges are more than priced into many companies, especially small and mid-cap companies. The expectation is that the government will deal with issues and emergencies in the financial sector. All eyes will be on who now becomes the Finance Minister. Also, a push for the infra sector is expected as stated in BJP manifesto,” said Porinju Veliyath, who runs EQ India Fund. In the short run, markets could be highly volatile, but there is a perception that India’s economy could continue to grow under the NDA government.

“The market is looking at the second term of the Modi Sarkar to build on the foundation laid in the last term,” said Nilesh Shah, MD & CEO, Kotak Mutual Fund. “India has good macros. The market believes that the stage is set for accelerating growth to higher level by tackling challenges to the revival of investment and consumption growth. It looks to Modi’s second term to change the orbit of Indian GDP growth from 7 per cent level to higher level (and eventually to double digits).”

Shah is of the view that markets are pricing in double-digit earnings growth over the next few years. He says that from a risk-reward point of view, the market is delicately balanced.

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