BJP win may see Nifty going up by about 2% in the immediate term

Indian equity markets got a thumbs up from investors as exit poll results suggested a clear win for the Bharatiya Janata Party in Gujarat and Himachal Pradesh. S&P BSE Sensex and Nifty 50 gained over 1 per cent intraday before ending with gains in the range of 0.7-0.8 per cent. While the broader market outperformed benchmark indices, all sectoral (except Nifty PSU Bank) and thematic indices ended in the green. Metals, automobiles, real estate and private banks led Friday’s rally.

“Assurance of political stability seems to have cheered market participants,” said Karthikraj Lakshmanan, Senior Fund Manager, BNP Paribas Mutual Fund.

If BJP actually wins, Mustafa Nadeem, CEO at EPIC Research sees Nifty hitting new highs (going over 10,500 levels).

However, the rally will soon be capped as the mood will turn cautious ahead of critical events such as Union Budget, advance tax numbers and earnings season. Markets have already been jittery for quite some time due to a combination of domestic factors (rise in inflation, bond yields and current account deficit, followed by dip in IIP and outcome of elections) and global concerns (rise in crude oil prices and outcome of the FOMC meet). Moreover, it is expecting a better performance in the December quarter due to lower base caused by demonetisation.

In case BJP does not win (which seems to have low probability, though), Kotak Institutional Equities sees this as a large negative for the markets, but expects only a moderate correction as the market’s focus will shift to India’s weakening macro position. Elara Securities expects a populist Budget if BJP does not win the recently concluded elections, which could further deteriorate the macro scenario (negative for markets).

Meanwhile, the Sensex’s composition is set for a reshuffle starting Monday wherein IndusInd Bank and YES Bank will replace Cipla and Lupin. With higher weights assigned to the two banking stocks, the overall weight of financial services sector will shoot up to 40 per cent, up 330 basis points, and will be more than the combined weights of sectors such as technology, consumer and automobiles, pointed out Motilal Oswal. As a result of the reshuffle, earnings of Sensex are likely to see a marginal upgrade of 0.2 per cent and 0.4 per cent in FY18 and FY19 respectively, due to better profit growth of the above mentioned banks, the domestic brokerage added.