Post-BJP win in Gujarat, bulls to dominate D-Street

The fact that BJP won lesser seats in the Gujarat State elections than projected by exit polls will not hurt equity market sentiment or traders having a bullish view on the Indian markets, experts say. Liquidity and global market sentiments will drive stock prices in India in the weeks ahead, they say.

On Monday, equity bellwether S&P BSE Sensex had crashed over 860 points or over 3 per cent in opening trade, its largest single day fall in 2017, as the Congress was seen leading in 86 assembly seats in Gujarat at around 9:15 am, while BJP’s tally was around 74. But the markets made a sharp comeback in the next half hour of trade as BJP’s seat tally surged past Congress to move over the majority mark of 92 seats.

Massive buying by domestic institutional investors (DIIs) ensured that markets gave a thumbs up to BJP’s election victory. DIIs were net buyers of stocks worth ₹1,076 crore in the cash equity segment, while foreign portfolio investors (FPIs) offloaded stocks worth ₹431 crore.

The Sensex ended the day at 33,601.68, up 138.70 points or 0.41 per cent. The broader Nifty of the NSE settled at 10,388.75, up 55.50 points or 0.54 per cent. The Sensex has now gained 409.93 points in the previous two sessions following exit polls prediction that BJP would win the Gujarat elections with nearly two-thirds majority or a higher seat tally than in the last polls.

“BJP got about 50 per cent vote share in Gujarat, which is the highest ever in 22 years. Therefore, less number of seats does not bother the markets,” said Rahul Arora, CEO, Institutional Equities, Nirmal Bang. “For many fund managers, the election was a kind of obstacle in the reforms process. But now the government’s full focus will be on the upcoming Budget session in February and the markets are bullish. It won’t be surprising if Nifty rises 10 per cent or more between now and post-Budget announcements.”

Elections in Gujarat, the home State of PM Narendra Modi, were seen as a referendum on his disruptive policies such as demonetisation and GST. BJP won the Assembly elections for the sixth time in a row giving markets the confidence that the Modi government’s tough reforms agenda would continue. The party also won the Assembly elections in Himachal Pradesh with a thumping majority.

“Elections have a sentimental impact, which will be short-lived, and the markets will focus on valuations, growth and economy,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies. “Even while BJP’s Gujarat seats tally is far less than expected, it will not negatively impact as liquidity is driving the markets and is the sole factor that has pushed all else aside this year. Mere victory of BJP is enough to keep sentiments going. Worry over earnings and valuations will catch up but sometime later.”

Upmove in benchmark equity indices in Asia, Europe and the US index futures too supported bullish sentiments in India.

“That BJP is forming a government in Gujarat with a clear majority is enough for the market sentiment to remain positive,” said Raamdeo Agrawal, Chairman, Motilal Oswal Asset Management.

A note from global financial major Nomura said that they expected some shades of populism to emerge in the coming weeks and months but remained positive on the medium-term outlook for India. Stock markets in India are trading at the highest valuations in terms of price to earnings multiple, comparable only to year 2000 dot com bubble or 2008 financial crises.

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