Never before in the history of the Indian stock market must a prime ministerial aspirant have received such a strong vote of confidence. While one would have expected investors to take risk off the table on the eve of the results for the elections to the 16th Lok Sabha, the Sensex on Thursday sprang to yet another lifetime closing high with the Street betting big Narendra Modi will be the country’s next prime minister. The benchmark closed the session within kissing distance of the 24,000 mark, at 23,905.60 points, and has outperformed peer markets Brazil, Russia and China in 2014, trailing only Indonesia in Asia.
The market has “already factored in a majority” for the BJP-led alliance, Sanjeev Prasad, co-head and senior executive director at Kotak Institutional Equities, said in an interview to Bloomberg TV India. Prasad added that the the Sensex may climb by as much as 5% if the BJP gets a majority, making it less reliant on the support of regional parties. Foreign funds stepped up their purchases of Indian stocks on Friday, ahead of the exit polls on Monday, driving up the Sensex by more than 1,000 points in just two sessions. They are buying in the belief the new government will kickstart growth and revive a moribund economy that has left corporate earnings weak.
Even as foreign institutional investors (FIIs) continued to shop for stocks on Thursday, the rupee strengthened to its highest levels in more than nine months, ending the session at 59.29 to the dollar after trading at levels of 59.09 intra-day. FIIs have now bought close to $6.8 billion worth of shares since January, the largest amount in any Asian market this year.
As a consequence, the Indian currency has now gained 4.5% since mid-February. Three-month offshore non-deliverable forwards rose 0.5% to 60.16 per dollar on Thursday, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.