bull run: BJP’s 3S returns on main Street to fire up market sentiment

Mumbai: The BJP’s stronger-than-expected showing in state polls, besides shortening the odds on a decisive mandate in the ensuing Lok Sabha elections, could help extend the bull run in Indian equities that have scaled the wall of global geopolitical worries with consummate ease on expectations of unwavering federal commitment to growth-focused structural reforms.

The Nifty, the most keenly tracked gauge in the world’s fourth-largest equities market, could surge to 20,500 immediately, building on its record closing levels of 20,267.90 Friday. As is the case with vertical climbs in financial asset values, the broadest gauges are vulnerable to short-term corrections, however, as valuations might seem stretched in pockets.

“The state election results reconfirm expectations of BJP’s strength, and the trend is likely to continue for the general elections as well,” said Rushabh Sheth, Co-CIO at Karma Capital Advisors. “It is a positive indicator because the markets like continuity and stability.”

The BJP trounced the Congress in the Hindi heartland states of Chhattisgarh, Rajasthan and Madhya Pradesh, which together send 65 lawmakers to the lower house. The state polls are a barometer of the BJP’s popularity ahead of the 2024 general elections when Narendra Modi will be seeking a record third successive mandate as the first non-Congress Prime Minister.

Emphatic BJP victories in three out of the four states that counted votes Sunday have strengthened market expectations of a decisive popular mandate for the ruling party in the 2024 Lok Sabha polls. These electoral victories have also boosted investor confidence in the government’s growth-focused reforms agenda built around manufacturing, likely boosting stocks further in capital-intensive industries such as infrastructure and power.

Power, Infra, Energy
“The election results bode very well for the markets as there will be more stability in terms of government and its policies, and the stance on investments in infrastructure, renewables etc,” said Sandeep Raina, executive vice president-research at Nuvama Professional Clients Group.

The texture of the mandate also eases concerns investors may have had about voter dissatisfaction with incumbency. “With the BJP winning in Madhya Pradesh, Chhattisgarh and Rajasthan, the probability of the party winning more seats in the general election becomes high. Along with Uttar Pradesh and Gujarat, which are the BJP’s strong states, the probability of winning more seats in the parliament becomes high,” Raina said. “These five states constitute around 200 seats in the Lok Sabha.”

For the Opposition Congress, only Telangana offered some solace on an otherwise disappointing Sunday.

“Since anti-incumbency concerns are refuted, the certainty of the BJP coming to power in the central elections has moved up materially,” said Niket Shah, fund manager at Motilal Oswal Asset Management. “The markets will start discounting that fact, and further short covering of positions by FPIs (Foreign Portfolio Investors) are likely.”

FIIs Resume Shopping
The drop in US bond yields, a weaker dollar and easing of crude prices have prompted FPIs to cut their bearish bets on the Nifty in the past month, fuelling the 4-5% rally in the benchmark indices. While these investors covered their short positions, they turned into net buyers worth ₹9,000 crore of stock in November after having sold Indian risk assets in the previous two months.

Shah said a rally of 5-7% is likely in the markets in the next few days, aided by favourable global market cues. The Sensex and Nifty have jumped about 7.5% since October 26, when the market rebounded after a month-long decline from their previous all-time highs.

Brokers said the momentum remains in favour of the bulls, although a sharp move might warrant caution.

“While part of the outcome was discounted in advance, there is a scope for a further up move discounting the positive surprises,” said Dhiraj Relli, CEO of HDFC Securities. “That said, we could witness some profit-taking at higher levels due to the end of a near-term uncertainty.”