Stock benchmarks BSE Sensex and NSE Nifty today crossed the 25,000 and 7,500-mark respectively and the rupee strengthened to 11-month high against the dollar as investors cheered Narendra Modi-led BJP's victory in polls.
The 30-share Sensex, which climbed 1,470 points to hit all-time intra-day high of 25,375.63 in early trade, retreated and ended with a gain of 216.14 points, or 0.90 per cent, at 24,121.74, a new closing high.
The 50-share Nifty on the National Stock Exchange after soaring 440.35 points to a historic high of 7,563.50, succumbed to profit-selling and ended at a peak of 7,203 – logging a gain of 79.85 points, or 1.12 per cent.
In terms of market capitalisation, investor wealth rose by Rs 1 lakh crore to end at Rs 80.64 lakh crore.
Narendra Modi today stormed to power at the Centre giving BJP its highest-ever tally in the Lok Sabha elections, securing for the party a majority on its own and in the process handing out the worst-ever defeat to Congress.
BJP has won 115 seats and was leading in 168 others, which will take the party to a total of 283, eight more than the required half-way mark in 543-member House. With its allies, the tally of NDA is expected to go up to 335.
"The preconditions provide an ideal ground for Modi’s stewardship to lead the country out of the current state of the economy," said Motilal Oswal, CMD, Motilal Oswal Financial Services.
Realty, banking, power, capital goods, refinery and metal counters attracted heavy buying interest while shares from IT, FMCG, pharma, teck and consumer durable fell on profit-booking.
In the forex market, the Indian rupee today rallied to a 11-month high of 58.62 against the US dollar and closed at 58.79, logging a 50 paise gain over yesterday's closing on robust capital inflows.
Financial markets have been marching upwards in the past few days since exit polls predicted leads for the BJP-led NDA.
Gold prices in national capital plunged by Rs 500 to Rs 29,600 per 10 grams today due to low demand from jewellers and retailers amid a weak global trend and strengthening rupee.
Dipen Shah, Head- Private Client Group Research, Kotak Securities:
The BJP, under the leadership of Mr. Narendra Modi, has led NDA to a landslide win - Election 2014. The high vote share and majority number of seats reflect the significant amount of ground the coalition has gained against the UPA and the other regional parties. This is the first time in the past 30 years that, a single party has won the majority in Indian elections. The formation of a stable Government at the centre bodes well for the economy as well as stock markets.
We believe that, the new Government will take steps and measures to take the growth rates higher on a sustainable basis in the long term. We expect steps to increase public investments and encourage private investments in infrastructure, ensure better Governance, reduce Fiscal Deficit (including control of wasteful subsidies), implement structural reforms like GST, DTC, improve Center – State relationships, control inflation by taking effective steps to ease the supply side constraints, etc.
However, we also feel that, it will take measured steps, rather than taking short term steps, as is being hoped by the market. It’s a new dawn; bright sunshine will follow.
The formation of the Cabinet and the 2014-15 budget will be the important events to watch out for.
From the market’s perspective, it is a significant development. We remain optimistic on the long term prospects of the markets. However, in the short term, markets may remain ranged or may even come under some profit-booking, especially after the sharp rise witnessed in the recent past. The outcome was discounted by the markets to a certain extent.
Based on our expectations that, strong reforms initiatives will be taken by the new Government, we continue to expect that, the domestic cyclical and infrastructure themes will out-perform.
Rajesh Iyer, Head- Investments and Family Office, Kotak Wealth Management:
Clear majority would boost sentiments and would have ripple down effect on the economy over the short term. Post initial euphoria it is the policy measures which would have real impact on the economy. For the bond market the budget would become crucial as the fiscal deficit number would actually indicate if there would be any additional govt. borrowing in the current fiscal compared to the one indicated in vote-on-account budget.
Clear mandate would provide room for significant reforms and a broad based rerating in the markets. Continue to be bullish with scope for Mid-caps and small caps to provide significant outperformance as investors start looking beyond large caps for alpha.
Raghu Kumar, Cofounder, RKSV:
After early polls showed that the BJP led NDA government is going to easily get the required 272 votes to win the election and hence, make Narendra Modi India's new Prime Minister, the markets rallied wildly with the Sensex jumping more than a 1000 points in early morning trading before ending the day 250 points up. The fall is most likely due to investors locking in profits after the huge surge in the morning, although it could also have to do with the expectations investors have on how many seats the NDA will actually grab and whether the BJP will, on its own, be able to grab the required 272 seats on its own.
That being said, consolidation is the last thing on the market's mind right now. We can expect the market to be bullish for weeks to come as the market fully digests the implications of a BJP-NDA led government let my Modi. Banking, infra, and retail can expect to see huge rallies through the end of May before consolidation finally kicks in. We can expect export driven stocks to remain flat as the Rupee possibly strengthens and IT firms realize that other sectors are bound to fare better under the new government's economic policies.
Harsha Upadhyaya, Chief Investment Officer - Equity, Kotak Mutual Fund.
The decisive verdict of Indian electorate is definitely positive for our economy as well as markets. Over the next few weeks, the focus will be on news flow from new government with respect to their policy initiatives. Despite equity market at new high, we believe there is upside in equities given reasonable valuations and expected improvement in fundamentals
U.R. BHAT, MANAGING DIRECTOR, DALTON CAPITAL ADVISORS, MUMBAI
"Immediate challenge is to just meet expectations as they run pretty sky-high for this government.
"The balance between centre-state government, fiscal and governance deficit, will be important issues to handle by the new government.
"Foreign investors are looking for new government to address the subsidy regime, infrastructure management, fiscal situation and tax issues."
NAVNEET MUNOT, CHIEF INVESTMENT OFFICER, SBI FUNDS MANAGEMENT, MUMBAI
"The results look very orangey and rosy for the markets. Completely better than what markets would have anticipated.
"He can afford to have a smaller but stronger cabinet, that means a far more decisive government. He has been saying less government and more governance, we are really likely to see that. The speed of decision making and execution is something that will clearly be visible right away."
AJAY KAUL, CHIEF EXECUTIVE OFFICER, JUBILANT FOODWORKS , NOIDA
"A clean mandate will help the government to be decisive with reforms and that is crucial given our past experiences in this country. What we are feeling most optimistic about is that the party winning this election came forward with a very clear development agenda and India needs that.
"All this government has to do is revive growth. Inflation has always been there but was never a problem with good growth. So help us with economic growth and we can handle everything else."
VENUGOPAL DHOOT, CHAIRMAN, VIDEOCON INDUSTRIES, MUMBAI
"The key takeaway is it will be a stable government, which means the government will be under no pressure to not revive economic reforms, bring down the inflation and restart the infrastructure building activities, which were not happening.
"It's not going to happen immediately, all these things will happen gradually, but the direction will be positive and that will boost the sentiment of the foreign investors. I think we can get to 10 percent growth during Modi's tenure."
PANKAJ MURARKA, HEAD OF EQUITIES, AXIS ASSET MANAGEMENT, MUMBAI
"This is the best thing that could have happened for the market, we couldn't have asked for anything better than this.
"I think this is the beginning of a new growth cycle of India, this is the beginning of new bull market.
"Clearly now, the government does have quite a few challenges as they take office, but at the same time there are too many low hanging fruits in India and if you can fix those, you can get the momentum going. Fuel subsidy is the one, obviously, in terms of the easier one to fix, and likewise tax reform and insurance reform can get the ball rolling."
PUNEET BHATIA, MANAGING DIRECTOR AND COUNTRY HEAD, TPG CAPITAL, MUMBAI
"It's decisive mandate. And Modi will be coming in with a burden of a lot of expectations. The key challenge would be to deliver on these expectations.
"Reviving the economy and bringing the growth rate back would be the major challenge. The world is watching how the new government would nurse the economy, how it will put an end to policy paralysis and bring in the governance back."
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
"The challenge is how to unleash a positive multiplier through kickstarting investments, with focus on job creation, and the acid test will come on how they will handle the impact of a likely El Nino on inflation. The first important milestone will be the budget, which will be watched closely for both quality of fiscal adjustments, credible fiscal math and sensible policymaking.
"There would be equal emphasis on the centre-state relations, which would be a big positive in the new regime.
"I think the economy has lost significant momentum. First they have to carefully balance and anchor expectations and bring them to realistic levels while simultaneously beginning to deliver by reviving investments and addressing impediments including the investments in the pipeline."
RADHIKA RAO, ECONOMIST, DBS, SINGAPORE
"The to-do-list is long and the ball is in the incoming government's court to walk the talk on reviving growth and addressing macro challenges.
"The new government is bound to face challenges on several fronts soon after taking office, foremost amongst which is the fiscal consolidation agenda.
"If the fiscal math is fixed, the FY14/15 deficit could be higher than 4.1 percent but might not attract negative reaction if a medium-term roadmap accompanies the fiscal document. Tackling inflation and improving the macro and regulatory environment to make it conducive for investments will also be key.
"On monetary policy, pressure might mount on the RBI to complement the government's pro-growth stance, but the RBI is unlikely to oblige given firm inflation."
A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI
"The key thing for the new government to do is to manage inflation and fiscal deficit, then everything else will fall in place.
"The government should focus on long-term measures to boost growth, and not short-term, and that will yield results from the second to fifth year.
"The kind of mandate the new government is likely to get will help them to be secure enough for five years. There is no excuse for not taking long-term measures if one comes to power with a big mandate."
PHANI SEKHAR, FUND MANAGER, ANGEL BROKING, MUMBAI
"The market's in a romantic state, it needs to tone down its expectations."
"The biggest worry in immediate short run will be inflation, as CPI (consumer price index) has again gone up in April and there is El Nino prediction and RBI is giving indication that it might raise rates."
"I do not get the rally in state-run stocks. Most of them have run up on valuations and disinvestment hopes, which is not sustainable."
SUNIL DUGGAL, CHIEF EXECUTIVE OFFICER, DABUR INDIA , NEW DELHI "(BJP) are getting a clear mandate, so they need to be quick in fulfilling their promises to revive growth. The sentiment in corporate India is hugely positive because we are confident this government will take urgent steps to revive the economy.
"One of the biggest challenge is inflation and it will be interesting to see how Mr Modi brings down what has now been a nagging headache for businesses across sectors."
RANJIT SHAHANI, MANAGING DIRECTOR, NOVARTIS INDIA LTD , MUMBAI
"A stable government at the centre augurs well for the economy. India has a catch-up game to play and our time starts now."
C.S. GHOSH, CHAIRMAN & MANAGING DIRECTOR, BANDHAN FINANCIAL SERVICES, KOLKATA "A stable government will help the country in development. My expectation is that the government will lead with a focus on not only economic growth but all round growth, an inclusive growth."
LEIF ESKESEN, ECONOMIST, HSBC, SINGAPORE
"It's important to be realistic about how quickly they can instigate change. It takes time to, number one, get economic reforms through the political machinery, and number two, it also takes a while before economic reforms actually have a positive impact on the economy.
"Yes, changes will most likely materialise post-elections, but I think we're still looking at a relatively slow turnaround in growth and a protracted recovery. So we're still looking at current fiscal year growth of 5.3 percent year-on-year and then we could potentially next fiscal year, that starts in April 2015, move to around 6 percent."
NILESH SHETTY, FUND MANAGER, QUANTUM ASSET MANAGEMENT, MUMBAI
"The (market) move was expected so I'm not surprised in that sense, but I'm just slightly concerned about the way the market is headed in terms of valuations.
"Markets are not building up any major expectations in the short run from the government, but what they are hoping for is a roadmap in the short run to clear up a lot of problems in the economy. Even the most optimistic investors have sort of resigned to the fact that the short-run could be a bit weak for India."
UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI
"The early vote counting suggests a strong comeback of the BJP. We expect the immediate challenge for the government will be to prop up growth and ease inflation.
"Expect the government to begin with releasing the buffer food stocks to tame food inflation and also to boost growth. The stalled investment projects need to be further fast-tracked, something which the government should take up immediately by providing a one-stop window for clearances both at the centre and the state.
"I think RBI will continue with regular consultations with the new government to show them the importance of taming inflation, at the same time introducing other growth-enhancing measures.
"The budget this year will not have too many big ticket announcements, though some adjustments to the borrowing calendar is likely."
AJAY GARG, MANAGING DIRECTOR, EQUIRUS CAPITAL, MUMBAI
"There is a significant sentiment change, and this will improve liquidity in the capital markets."
"However, this is not an easy government to take over. Growth is still not there. You have a significant inflation to take care of. Interest rates cannot be brought down the next day. Revival of the investment cycle is not that easy."
ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI
"I think the new government will take the infrastructure route and get projects executed. I think the Gujarat government has been excellent in this, going by all parameters, and if they can replicate that at the central level, that could do wonders.
"I think the RBI will have to perhaps modify its stance on core CPI (consumer price index).
"There are very long term structural issues in areas like healthcare, road transportation where supply bottlenecks have built up over decades and there you can not have the simple supply management.
"Perhaps a middle ground can be worked out where interest rates flatten out rather than go up further and inflation targeting as this extreme method of managing inflationary expectation is watered down a little."
HIGHLIGHTS: Indian election latest
-- The benchmark share index rose as much 6.1 percent, hitting a record high
-- The partially convertible rupee rose to 58.68 per dollar, its strongest level in 11 months
-- India's benchmark 10-year bond yield hit an over three-month high, falling 10 basis points to 8.68 percent, a level last seen on Feb. 6.
-- Modi has promised to unblock stalled investments in power, road and rail projects to revive economic growth that has fallen to a decade low of below 5 percent.
-- Tax and labour market reforms, backed by a gradual opening up to foreign investment, would seek to create the 10 million jobs that Asia's third-largest economy must create every year to employ young people entering the workforce.
Narendra Modi faces key investor tests
(Reuters) BSE Sensex on Friday surged to record highs while the rupee strengthened to an 11-month peak against the dollar as the opposition Narendra Modi-led Bharatiya Janata Party and allies were all set to sweep the country's elections with an absolute majority.
Domestic-focused shares such as ICICI Bank Ltd and Ambuja Cements Ltd soared, reflecting hopes the BJP and its National Democratic Alliance are best placed to revive an economy growing at its slowest in a decade, while exporters like Infosys Ltd suffered.
Analysts cautioned that the rally in markets will now need to be justified, and a series of key tests will loom for the new government led by Narendra Modi, including most immediately, the selection of a cabinet.
Other critical areas for investors include the new government's relationship with a central bank focused on inflation and the need to deliver a budget that can reassure markets and credit agencies about the fiscal deficit.
"Clearly financial markets have gone far ahead of fundamentals," said Ananth G. Narayan, co-head of wholesale banking for South Asia at Standard Chartered in Mumbai.
"The next 100 days will be critical for the next government to revive the investment climate."
The strong market gains come less than a year after the country was gripped by its worst currency crisis since the balance of payment crisis in 1991.
Although analysts also credit measures taken by the outgoing Congress party and the Reserve Bank of India for stabilising markets, gains have accelerated since the BJP named Modi as its candidate for prime minister in mid-September.
As a result, India has gone from one of the most vulnerable emerging countries to one of the favourites among foreign investors; overseas funds have poured more than $16 billion into Indian stocks and bonds in the past six months.
The benchmark BSE index gained as much as much as 6.1 percent to a record high at 25,375,63 - a gain that makes it the third-best performer in Asia in dollar terms so far this year after Indonesia and Pakistan.
Meanwhile the Indian rupee strengthened to as much as 58.62 per dollar, its highest since late June 2013, marking a 17.5 percent gain since the record low hit in August.
The benchmark 10-year bond yield fell as much as 10 basis points to 8.68 percent, its lowest since Feb. 6.
'WALK THE TALK'
Investors will now expect the BJP to deliver. Most immediately a Modi-led government is expected to soon name key cabinet posts such as the finance ministry, which is widely seen as going to Arun Jaitley, a senior BJP leader.
Meanwhile, as the BJP focuses on reviving growth and investments, it will need to accommodate the RBI, whose Governor Raghuram Rajan has made fighting inflation a priority since taking the helm of the central bank in September.
The BJP will also need to deliver a budget that investors hope will be more realistic than the one unveiled by Congress party in February, which tips the fiscal deficit at 4.1 percent of gross domestic product for the year ending in March 2015.
The high markets hopes were reflected in domestic-focused shares that would benefit most from an economic recovery.
The subindex for banks at the broader NSE index surged as much as 10.6 percent to a record high, putting its gain at 38.3 percent so far this year. ICICI Bank surged 8 percent and State Bank of India rose 7.5 percent.
Infrastructure-related sectors also gained on expectations the new BJP government would focus on construction projects, sending Ambuja Cements Ltd up 6.7 percent.
But shares of exporters fell, with their earnings expected to be hurt by the surging rupee. Software outsourcer Wipro Ltd lost 1.6 percent and drugmaker Dr Reddy's Laboratories Ltd dropped 2.5 percent.
Analysts warned that the market gains could be at risk should the BJP end up disappointing investors.
"The to-do list is long and the ball is in the incoming government's court to walk the talk on reviving growth and addressing macro challenges," said Radhika Rao, an economist for DBS in Singapore.