Riding high on the post-elections results of the National Democratic Alliance (NDA) wave, on May 23, BSE Sensex zoomed past the 40,000 mark and NSE Nifty touched the 12,000 mark. The NDA is currently leading over 300 seats.
Although the markets have already rallied since May 20, as it was anticipated by exit polls which saw BJP winning anywhere between 267 and 350 seats. Today the market started confirming that same trend as stock market indices hit a new high. Commenting on this new high, Garima Kapoor, Economist, Elara Capital said, “With the ruling NDA dispensation set for another five-year term, the political risk has reduced and the market expectation for policy continuity has been addressed. We believe, the election related exuberance could propel the markets in the near term and pose an upside risk to our CY’19 Nifty target of 12,000. However, the current level of corporate fundamentals, trade wars and the progress of monsoon will also weigh on the markets.”
Market experts are already discounting the positives when it comes to financials and select pockets of consumption. “The new government will have the ability to pursue the economic reforms initiated in the past five years. Such a strong mandate should ensure continuity of policy, undertake further structural reforms and likely boost business and consumer sentiment and in turn to revive economic growth yet again. This may lead to a medium term up-move in the equity markets,” said Rajesh Cheruvu, Chief Investment Officer, WGC Wealth. Although the current market is in euphoria, market experts have warned it has lot to catch up with when it comes to surrounding ground realities of the economy and global factors.
The Modi government’s second innings is likely to be more challenging under the ongoing consumption slowdown with limited fiscal space. Romesh Tiwari, Head of Research, CapitalAim said, “Global markets are showing weakness due to US-China trade worries and so our market may settle down or even turn negative in the short term. Traders must stay cautious now. Looking at technicals, Nifty has a support of around 11,730 levels, breaching it on downside might result in more downside towards 11,600, On the upside, any close above 11,800 may take the Nifty above 12,000. Infra and Banking sector may give good returns on the upside.” Further commenting on the market dynamics, Amnish Aggarwal, Head Research Prabhudas Lilladher said, “Election results are positive for the market as it gives a stable government for the next 5 years. However, post initial euphoria, focus would shift to hardcore economic decisions and the manner in, which slowdown and economy is handled in Modi 2.0 tenure. we are positive on long term for the markets, our Nifty target in a bullish scenario is 13000, for which growth rates need to catch up.” Overall, it can be said that the Modi government has once again succeeded in instilling confidence of continuance with its unhindered policy decisions, when it comes to a strong economic growth.