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Sensex, Nifty Rally After Exit Polls, Raising Hopes For The Next Bull Run

Exit polls for India’s 2019 Lok Sabha elections unleashed a stock market rally on Monday morning.

A bronze bull statue stands at the entrance to the Bombay Stock Exchange (BSE) building in Mumbai, India, (Photographer: Dhiraj Singh/Bloomberg)
A bronze bull statue stands at the entrance to the Bombay Stock Exchange (BSE) building in Mumbai, India, (Photographer: Dhiraj Singh/Bloomberg)

Indian equity benchmarks clocked their best single-day gains in nearly six years to close at record highs today, after exit polls for Lok Sabha election 2019 assured investors that Prime Minister Narendra Modi-led Bharatiya Janata Party will return to power.

The S&P BSE Sensex closed 1,422 points or 3.75 percent higher at 39,352.67 and the NSE Nifty 50 ended at 11,828.25, up 3.69 percent. The broader market index represented by the NSE Nifty 500 Index closed 3.67 percent higher.

The Indian rupee opened higher against the U.S. dollar, appreciating as much as 1.23 percent to 69.36 percent against the greenback. The one-month offshore non-deliverable rupee forwards jumped as much as 1.2 percent to 69.64 per dollar. The home currency’s gain stood at 0.9 percent as of 2:40 p.m.

“The rise in the market is a thumbs-up to continuity and strength in both the houses of the Parliament which will allow the new government to push through difficult reforms,” Vikas Khemani, founder of Carnelian Capital Advisors, told BloombergQuint, adding that the economy needs a good repair at this point in time. “The government has to come out with a good economic revival plan.”

A longer rally in the market would depend on what kind of plans the government comes up with, he said.

Pankaj Murarka, founder of Renaissance Investment Managers, said the markets will settle somewhere over the next few weeks, presenting a good opportunity for investors to invest with a five-year view.

“We could be at the cusp of a new bull market,” Murarka said.

“We are looking at a target of 42,000 for the Sensex,” Jonathan Garner, chief Asia and emerging market equity strategist for Morgan Stanley, told BloombergQuint, adding that the rally may be triggered by the exit polls but it will not be its key driver. “We think earnings growth in India would accelerate from around 2 percent on a trailing basis from year-on-year to around 20 percent. That's a key driver of our Sensex target of 42,000.”

The Indian market has been a trend outperformer over the last 12 to 18 months and will continue this story, he said.

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Exit Polls Herald The Return Of Modi And A Market Rally

It’s been a nervous election season for India’s equity market, with many traders and investors rooting for continuation of the Narendra Modi government. That confidence helped the benchmark Nifty 50 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.

These fears seem to have dissipated after four exit polls unanimously showed that the National Democratic Alliance will return to power with a majority of over 300 of the 542 Lok Sabha seats.

Indian equities should be on track for new highs assuming May 23 results are in line with the exit polls, said Nirav Sheth, head of institutional equities at SBI Cap Securities.

For the first time we have a government, which focuses on inflation for two consecutive terms -- keeping it around or below 4 percent -- Sheth pointed out. "The great advantage this time is that hopefully you don't have a Rajan factor which despite low inflation had kept high interest rates and I'm assuming that we'll have low real rates as you go forward," he said. "That's a big change which means you'll have a stronger rupee and lower inflation - it's a very virtuous cycle."

However, even though the exit polls have rekindled animal spirits, it will be upon the government in charge to take the right kind of policy actions, "which means focus on growth and not on morality issues," he said. "That will be key going forward."

“As we get into the next five years of the cycle, we have largely dealt with the twin balance sheet issue because most of the NPAs have been provided for,” Murarka said. The leverage in the top 200 Indian companies has reduced, setting the stage for a revival of the investment cycle that has been missing over the last five to seven years, he said.

The only thing I would look out for now is a reasonable monsoon.
Pankaj Murarka, Founder, Renissance Investment Managers

Khemani is also bullish on the India story. Despite the growth issues and global and domestic uncertainty seen over the last year, the coming year will be a year of growth, he said. “India in this sense is a kind of oasis because this kind of growth you will not see in most of the markets. Global investors will be forced to look at it, but even if that doesn't happen, Indian liquidity is good enough to take us to the growth trajectory.”

Global investors also see this as a relief, with continuity and “strength in the heart of the government”, said Jim Walker, chief economist at Aletheia Capital.

Watch the full interaction here:

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