Exit Polls Herald The Return Of Modi And A Market Rally
Market experts expect 3-10% rally if exit polls are proven right.
“Jump in! It’s uptick time, it’s Modi again,” said one equity market trader as all six exit polls indicated a comfortable win for the National Democratic Alliance, the BJP-led coalition, in the 2019 Lok Sabha elections. The unanimity in forecasts was underscored by four polls forecasting that the NDA will return to power with over 300 of the 542 Lok Sabha seats. That data is comforting for those investors unnerved by the prospects of a coalition of several opposition parties forming government, as also those who were sceptical of the Bharatiya Janata Party winning over more allies in case its pre-poll alliance fell short of the 272 seats mark.
The market was working with the assumption that the NDA would need to ally with other parties to form the government, said Saurabh Mukherjea, founder of Marcellus Investment Managers. “To the extent that the exit polls are predicting an outright victory for the NDA, we could see a 5-10 percent rally in the coming weeks.”
That’s contingent on May 23, vote counting day, delivering a verdict similar to what the exit polls are saying. They haven’t always got it right, often succeeding in capturing vote share trends but not accurately forecasting seat wins. Echoing that scepticism, investment manager Nilesh Shah said: “Exit polls are a huge boost for market sentiment. Till the result day, apprehension would be put to rest.”
Exit Polls 2019 Updates: Modi Likely To Return To Power, With Polls Predicting NDA Majority
An average of all six polls, or a poll of polls, suggests the NDA will win 316 seats, the Congress party-led United Progressive Alliance will win 113 seats, with an equal number going to other parties.
Among the various exit polls that have historically been among the more accurate, Today’s Chanakya predicts 350 seats for the NDA, while the India Today - Axis My India poll predicts 352 seats for the NDA, said a Nomura note soon after the exit polls outcomes were released.
If the BJP-led alliance crosses 300 it will mark a historic win for Prime Minister Narendra Modi who has run a blistering, presidential-style campaign. “The big picture is that there is a silent Modi wave 2.0. This election is more about choosing a prime minister than choosing a member of parliament,” political strategist Amitabh Tiwari said. “And it clearly shows that the people have voted for the prime minister. There was no other candidate from the opposition. So it has gone as planned for the BJP.”
“While exit polls have been right in the past about the winner, they have underestimated the seat count of the victors by 60-70 seats, so there is a possibility that these projections may understate the final seats won.” - Nomura
The 2014 win for the NDA, with 282 seats, was itself a landmark, the second largest Lok Sabha tally ever. The largest Lok Sabha victory was scored by the Rajiv Gandhi-led Congress party in 1984, in an election held soon after the assassination of his mother and then prime minister Indira Gandhi. The Congress party won 404 seats.
Nervous Markets, Slowing Economy
It’s been a nervous election season for India’s equity markets, with many traders and investors rooting for continuation of the Narendra Modi government. That confidence helped the benchmark Nifty Fifty index rise to a year-to-date high of 11,787 in mid-April. It then slid to 11,148 on global trade war fears as well as expectations that a clutch of regional parties could fight back the BJP in key states.
For instance, Uttar Pradesh with 80 seats where exit polls indicate it will go down to the wire between Modi’s BJP and an alliance of Akhilesh Yadav's Samajwadi Party and Mayawati’s Bahujan Samaj Party. The BJP and its alliance partner Apna Dal is expected to just cross the 50 mark, while the SP-BSP alliance will get 26, according to an average of the six polls. The Congress is expected to win just two seats, both the Gandhi family bastions of Amethi and Rae Bareli.
In West Bengal, too, Mamata Banerjee’s All India Trinamool Congress party may win more seats than the BJP, with four polls indicating TMC will bag more than half the state’s 42 seats.
In Odisha, another state with a strong regional party holding sway, the fight is neck and neck according to the exit polls. Two of three polls expect the BJP to win as many seats as the Biju Janata Dal, the party that rules the state. A poll of polls indicates 12 of the 21 seats will be won by BJP.
These two states aside, BJP and its allies are expected, by most exit polls, to sweep Bihar, Gujarat, Maharashtra, Rajasthan, Karnataka, Madhya Pradesh and Delhi.
The exit poll results are better than the expectations, said market veteran Motilal Oswal, chairman of an eponymous firm. “Markets will move up by 2-3 percent in the next few days.”
The reason, as some put it, is an expectation of continuity in policy making. Andrew Holland, chief executive officer at Avendus Capital, told BloombergQuint that equity markets will react positively with a 3-5 percent rise. He expects the rupee to move towards 69-70 to the dollar. “Reason being continuity if that is the case.”
We could see 25-30 paise appreciation in the rupee tomorrow (Monday), said Paresh Nayar, head of currency and money markets at FirstRand, to Bloomberg. The rupee closed at 70.22 on Friday, May 16.
“The Modi win means GST, IBC, NPA policy continuity, vital for ensuring India’s economic recovery,” said Chakri Lokpriya, managing director of TCG Advisory Services, urging other investors to jump in. He’s referring to the Goods and Services Tax and the Insolvency and Bankruptcy Code—both key economic legislations introduced by the Modi-led government in 2016 and 2017.
To be sure, both have had mixed outcomes so far, mostly due to poor implementation. More recently India’s economic growth has also slowed—as evident in a number of indicators over the last several months. For instance, March industrial output contracted for the first time in two years. Several consumer-facing industries have witnessed a sales slowdown for a clutch of reasons, including deep rural economic distress. The U.S.-China trade war and volatile crude prices have compounded matters.
If the NDA returns to power, we do not forsee a major reversal of the current (weak) economic conditions in the short-term, although the end of political uncertainty and policy continuity would be a medium-term positive, the Nomura note said.
Yet, last week, traders seem to have gotten wind of the exit poll outcomes. The Nifty recovered over a percent to 11,400 levels, closing at 11,407 on Friday. The rally may find stronger legs next week, at least till Thursday, May 23, when the real outcome will be declared by the Election Commission of India.
Corrects the earlier version which showed ABP-CSDS poll. It has been rectified to ABP-Nielsen poll.
Watch this video wrapping up the key highlights from the exit poll results: