Over the past few months, benchmark indices BSE Sensex and the Nifty have been ruling consistently close to their historic peak levels, mainly on account of two factors: the bullish news (and fund) flow from the US and hopes of a Narendra Modi-led Government after next year’s Parliamentary elections.
Not only the main indices, but also the mid- and small-cap indices have joined the party in the last few weeks, though they are still far from their historic levels.
Will the market sustain the gains and move on further?
Foreign financial behemoths Goldman Sachs, Nomura and CLSA have already been betting big on Modi.
Goldman Sachs had in fact raised India to ‘marketweight’ with a revised Nifty target of 6,900 for 2014-end. It believes that if the recent rally in equities and optimism regarding leadership change at the Centre next year stem the redemption outflow of domestic institutional investors, the demand-supply balance could shift to a more favourable level.
Nomura expects a BJP-led coalition to form the next government at the Centre after the 2014 elections, said Alastair Newton, political analyst, in a recent note. However, Newton tempered his political forecast saying “a stable Government, regardless of whether it is led by the BJP or the Congress, should support a gradual business cycle recovery.”
These expectations make the outcome of assembly elections keener than ever.
Christopher Wood of CLSA said if the Modi momentum is currently super-strong, the issue for the BJP candidate is that the general election is still six months away. This raises the risk that he is peaking too early. “Still, this is a risk worth taking since the four key State elections, to be concluded in December, are a clear test of whether he has national appeal,” Wood said in his weekly Greed & Fear (November 21) column, which is widely followed by millions across the globe.
But there are other views as well.
Espirito Santo Investment Bank said: “We advise investors to be cautious while investing in the market based solely on predictions of election results. We think any outcome other than the Third Front winning will be neutral to positive for the market. We think the focus should remain on the fundamentals of the economy and companies, as we think no matter how the cookie crumbles (except for a Third Front), it will be neutral to positive from hereon.”
“Political stability and policy credibility are paramount to companies making long-term investment decisions,” Nomura said in the note on Tuesday.
With the results of assembly elections — Madhya Pradesh, Rajasthan, Delhi, Chhattisgarh and Mizoram — to be announced on December 8, one hopes a clear trend will emerge on the political front.
If that happens, many investors will enter the market
badrinarayanan.ks@thehndu.co.in