Nifty 50 Sets Its Sight Beyond 9,000 But The Upside May Be Limited
How is the market looking at trade post the UP election results?
The benchmark Nifty 50 of the National Stock Exchange India Ltd. (NSE) looks set to cross the 9,000 mark when it resumes trade on Tuesday after an extended weekend.
The benchmark came close to breaching this level in the first week of March before cautious investors booked profits ahead of the outcome of assembly elections in five states on March 11, 2017. The Singapore-traded SGX Nifty – an early indicator of Nifty's performance in India – closed above 9,150 on Monday.
The Bharatiya Janata Party (BJP), currently in power at the Centre, is set to form a government in four of the five states that went to polls, and will now rule in 13 states in the country – the highest number in its history.
This should facilitate decision-making on significant reforms (land, labour, tax), going forward, said Motilal Oswal Securities Ltd. in a report published after the election results. It would also speed up decisions on strategic policies and allow smooth transmission of economic policies, the domestic brokerage firm added.
Reform Expectations And Near-Term Gains
Heightened expectations of further reforms could, in turn, trigger near-term gains in the stock market, Edelweiss Securities Ltd. said in its research note following the election results.
The strong performance of BJP in UP is likely to boost market sentiments in the near term. The victory significantly increases chances of it gaining majority again in 2019 general elections. It also emboldens PM Modi to continue his reform process. This, along with improving global growth, should keep markets buoyant.Edelweiss Securities Report
In particular, the market will expect definitive action from the government on implementation of the Goods and Services Tax (GST) from July 1, 2017 and on speedy resolution of the over Rs 7-lakh-crore bad loan problem.
To a great extent, this win has been priced in and from now on, the market will be keenly watching jobs, development, activity in infrastructure, and implementing GST with full force. Undoubtedly markets will open higher on Tuesday.Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company
Limited Upside
According to a BloombergQuint poll conducted after voting was concluded in all five states and ahead of the counting on Saturday, a BJP victory was factored in by the market. However, the “extent and magnitude of the victory is a surprise”, Motilal Oswal said in its report, adding that any upside from here could be limited as fundamental factors such as valuations and earnings growth do not suggest any meaningful upside.
The focus would soon revert to fundamentals – valuations at 18x FY18 estimated EPS on anticipated 20 percent growth in FY18 Sensex EPS do not provide meaningful room for upside. The earnings recovery has not panned out as anticipated and Sensex EPS has stayed flattish over FY13-17.Motilal Oswal Securities Report
Focus On Electoral Promises
Among the BJP’s various poll promises to the Uttar Pradesh electorate, the market will keenly watch for any developments on the following three:
- Waiver of all small and marginal farmer loans.
- Interest-free agriculture loans to all small and marginal farmers.
- Payment of sugarcane farmers’ dues by banks and sugar mills
Bank stocks, in particular, will remain in focus as the promise of farm loan waivers in UP could find resonance in other BJP-ruled states. Already, the Opposition in BJP-ruled Maharashtra, including its coalition partner Shiv Sena, has stalled House proceedings for three straight days on demand for loan waivers which could cost the state up to Rs 22,000 crore.
Tuesday Trade
SGX Nifty futures in Singapore closed above 9,150 on Monday when Indian markets remained closed for the festival of Holi. Nifty closed ahead of counting on Friday at 8,934.55.
The NSE derivatives market witnessed closing of futures positions on Friday. There was hectic activity on the Bank Nifty options, with the open interest for Calls rose by 47 percent and Puts by 32 percent on Friday. The maximum Call open interest build-up was seen at 21,000, indicating traders are betting against the Bank Nifty Index going past 21,000 mark, while open interest positions of Bank Nifty Puts suggest the index is unlikely to fall below the 20,500 level. The Bank Nifty Index closed at 20,727.55 on Friday.
Fund Flows
Foreign portfolio investors invested Rs 18,354 crore on a net basis since the beginning of 2017, including Rs 9,629 crore through the secondary market and the primary market route in March.
Domestic institutional Investors have bought Rs 1,824.5 crore on a net basis since the beginning of the year and sold Rs 3,860 crore in March so far.