Stock markets sizzle, but Street sees more steam in rally

May 14 2014, 19:13 IST
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BofA-ML ups Sensex target to 25,500, Nomura expects 27,200 by Dec BofA-ML ups Sensex target to 25,500, Nomura expects 27,200 by Dec
SummaryBofA-ML ups BSE Sensex target to 25,500, Nomura expects 27,200 by Dec

Despite the sharp surge in stock prices that has driven up the indices by 7% in just three sessions, the Street believes there’s more steam left in the rally. The confidence stems from the results of the exit polls that suggest the National Democratic Alliance (NDA) will form the next government; foreign institutional investors continue to shop for Indian stocks, having pumped in close to $6 billion since the start of the year.

With all the five exit polls released on Monday predicting a strong win for the BJP led-NDA with a tally of anywhere between 249 and 289 seats in the 543-seat Lok Sabha, the Sensex raced past the 24,000 mark on Tuesday before coming off a bit and closing at a new all-time high of 23,871 points, up 320.2 points over Monday’s close. The broader 50-share Nifty ended the session at 7,108 points, gaining 94.5 points. The Sensex has added a whopping 1,526 points in the last three sessions but remains the second-best benchmark gauge in the region after Indonesia. While the Indian market has returned 12.7% since January this year (in dollar terms), Jakarta has yielded 15.14%.

“We believe that even the lower-end number of 249 is in line with the market expectations. The exit polls indicate that NDA will be able to form the next government without much trouble and will leave enough flexibility with Mr Modi to pursue his growth policies,” a CLSA report released on Tuesday noted.

Bank of America Merrill Lynch (BofA-ML) has raised its year-end target for the Sensex to 25,500 from 23,500 earlier, pencilling in an 8% gain.

“Near-term, the market is discounting a lot of the good news and the margin for error appears low. However, if the exit polls are accurate, a stable government seems to be a likely prospect. We think the markets will trade at a premium to long-term average through 2014 as investors anticipate a spate of reforms which lead to a turn in the economic cycle,” BofA-ML head of research Jyotivardhan Jaipuria wrote.

Nomura Capital (India) expects another 10% up-tick, and has set its year-end target for Sensex at 27,200 (earlier 24,700) if the election results are in line with expectations. “If the exit polls are right, then a majority for the NDA government will be taken very positively by the markets,” the firm’s analysts commented.

Last Friday, Macquarie Capital Securities (India) said it was positioning for a 10%

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