Prime Minister Narendra Modi shows his finger marked with indelible ink, as he leaves after casting his vote during the second phase of state Assembly elections, at Ranip in Ahmedabad. (Source: PTI)

What Dalal Street Made Of Gujarat Exit Polls

Brokerages are in a wait-and-watch mode despite exit polls predicting a victory for Prime Minister Narendra Modi-led Bharatiya Janata Party in his home state Gujarat.

The BJP is projected to capture 115 seats in the 182-seat Gujarat assembly, according to the mean tally of exit polls conducted by Today’s Chanakya, Times Now - VMR, C-Voter, and India Today-Axis My India exit poll. The Congress is likely to win 65 seats.

Indian equity markets reacted positively to the polls, with the S&P BSE Sensex rising as much as 1.1 percent to 33,621 in early trade. But leading brokerages including CLSA and Kotak Securities Ltd. are of the view that only the final tally on Dec. 18 will give a clear indication on the future trajectory for Indian markets.

Here's how brokerages and investors reacted to the exit polls:

CLSA

CLSA's India Strategist Mahesh Nandurkar expects a positive reaction from the markets as a potentially convincing win—of more than 110 seats—for a state perceived to be the most impacted by Goods and Services Tax and demonetisation, will boost the market sentiment.

A weaker-than-expected performance would be interpreted negatively, he said.

The markets may start believing that populist spending could rise ahead of the 2019 elections, which could further pressure the bond markets.
Mahesh Nandurkar, India Strategist, CLSA

Citibank

Citibank’s Chief India Economist Samiran Chakraborty is of the view that if the base case scenario as shown by the exit polls plays out, it should be neutral for the markets. However, a BJP victory in Gujarat with less than 100 seats could trigger an adverse reaction, while a win with over 120 seats could prompt a positive response, wrote Chakraborty in a note to clients.

Kotak Securities

If the BJP wins the elections, the market could see a “modest rally”, said Sanjeev Prasad, managing director of Kotak Securities Ltd. A loss could lead to a correction.

“Focus will shift to macro, earnings and valuations post elections, more if the BJP loses. Earnings will matter more given domestic and global,” he said.

Foreign Investor View

If BJP wins the Gujarat elections with a significant majority as indicated by the exit polls, it will be bitter sweet for foreign institutional investors, said Richard Harris, chief executive officer of Port Shelter Investment Management. While flows will not be directly affected by the results since the investors are taking a long-term call, there is both a positive and a negative to the expected results, he said.

Sweet in terms of the fact that Prime Minister Modi has run a relatively stable ship especially for foreign investors which is very important. Negative because if one side becomes too strong and too dominant, then politically it might be more difficult - you might become more extremist. You might end up having less stability because of a strong majority than if you had won with a weaker majority. 
Richard Harris, CEO, Port Shelter Investment Management