The decisive mandate for the BJP, led by Narendra Modi, has triggered hopes of a new phase of bull run in the equity market, which had remained subdued for most part of the last six years.
Friday was a historic day in the Indian politics, with the BJP performing better than most optimistic of forecasts in the Lok Sabha election. It not only crossed the majority mark on its own, but also gave best performance by any party since 1984.
The benchmark BSE Sensex registered a sharp 6% jump and breached the pyschological 25,000-mark within an hour of trading, before cooling off on profit-taking.
According to Saurabh Mukherjea, Institutional Equities at Ambit Capital CEO, the market is on the cusp of a 2-3 year bull run: ?With the economy bottoming out, a fresh face as the PM and the outgoing government doing a credible job of delivering on reforms in its final year, the stock markets are on the cusp of a 2-3 year bull run. Even if we assume that the Sensex would generate a 25% per annum return over next two years, we are looking at 30,000-mark in a year and 37,500 in two years.?
An India equity research note by brokerage Deutsche Bank, on Friday, said the mandate justified a re-rating of the Indian equity markets. ?Over the past decade, a fragmented coalition with differing economic ideologies had been the key reason for the economic malaise. The political platform now delivered to the NDA is historic and should result in a simultaneous revival of investor, consumer and corporate confidence,? it said.
The brokerage has set December 2014 Sensex target at 28,000, implying a multiple of 18x on FY15 EPS: ?We strongly believe we are on the cusp of a structural bull market.?
Deutsche Bank is not the only foreign brokerage to raise the target for the Indian benchmark indices. Macquarie, which expects the GDP growth to improve from 4.7% in FY13 to 6.5-7% pa by FY16-17, raised its 12-month forward Nifty target to 8,400 from 7,200. UBS Research has set its Nifty target for 2014-end at 8,000.
?We believe investors will be willing to give a premium for growth hope and also look beyond FY15 earnings estimates. By 2014 end, investors would start looking at FY16 estimates. Based on our top-down expectation of 15% earnings growth in FY16, and 15x PE, we set our Nifty target for end-2014 at 8,000,? said a UBS research note on Friday.
The thumping victory for the BJP has justified the confidence of overseas investors, who had taken positions in large-cap stocks ahead of the exit polls and were anticipating a stable government at the Centre. Foreign institutional investors (FIIs) shopped for equities worth $618 million on Friday, the highest single-day purchase since March 21. In the last 19 sessions, FIIs have purchased a little over $2.6 billion worth of shares, taking the year-to-date purchases to $7.4 billion.
?This is the first time since 1984 that a single party has secured an absolute majority. This is an extremely positive structural move for the potential returns in the equity markets. It is also positive for a potential drop in interest rates over the next 18 months,? said Sankaran Naren, CIO, ICICI Prudential AMC. Naren added the banking and infrastructure stocks along with mid-caps are likely to outperform the large-caps in the coming months.
On Friday, BSE Sensex closed at a new all-time high of 24,121, a gain of 0.9% or 216 points, after swinging between a gain of 6.15% and a loss of 0.1%. The broader 50-share Nifty closed at 7,203 points, up 1.1% or 79.8 points. In the last six sessions, the Sensex has added 1,777 points. The BSE index has gained 4.9% in the week, while the NSE index gained 5%, their biggest weekly gains since the week ended December 2, 2011.
Cash volumes on NSE stood at Rs 36,318 crore, the highest-traded value since May 2009. India VIX, a volatility index based on the CNX Nifty index option prices, declined 33% to 24.29, indicating reduced volatility in the coming days.
The BSE Sensex is now among the best-performing markets; Sensex has yielded 19.65% returns in US dollar terms beating China’s Shanghai Composite (-6.96%), Taiwan Taiex (2.09%) and South Korea’s Kospi (2.88%). Indonesia’s Jakarta Composite (25.52%) is the only Asian market to have outperformed India.
India has outpaced several of its peers in overseas inflows in year to date. The country’s FII inflows of $7.4 billion are higher than Indonesia’s $3.3 billion and Taiwan’s $6.3 billion. FIIs have offloaded shares worth $22.7 billion from Japan and $536 million from South Korea.
