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Indian stocks zoomed to a record and the rupee and sovereign bonds climbed after exit polls signaled Prime Minister Narendra Modi’s ruling coalition is poised to retain power.
The S&P BSE Sensex rallied 3.8% to a new high, its second in over a month, as exit polls predicted a comfortable majority for the Bharatiya Janata Party and its allies. A gauge of stock-market volatility slumped, the rupee rose the most since December and the yield on benchmark 2029 bonds slid eight basis points.
The predictions have comforted investors concerned by Modi’s ability to repeat his landslide 2014 win amid a resurgent opposition, farm distress and a job crisis. While a second term depends on the vote-counting day delivering a verdict similar to exit polls, the strength of the projected victory is reassuring, according to BNP Paribas Asset Management.
“The markets should see continuity and potential for reforms and foreigners are likely to be net buyers,” said Jean-Charles Sambor, deputy head of emerging-market debt at the money manager. “We see India as being under-owned.”
Global funds bought a net 17.3 billion rupees of shares on Monday, according to provisional data from the exchanges. That would mark the first net inflow since May 7.
Sentiment has been fragile as overseas funds have pulled more than $650 million combined from local shares and bonds this month amid the political uncertainty and the risk off mood triggered by the U.S.-China trade standoff. The rupee, Asia’s top performer in March, has slid 0.8% this quarter, while the Sensex halted a nine-session losing streak last Tuesday before capping the best week since March.
“India needed a strong political mandate, given global headwinds like U.S.-China trade dispute, foreign fund outflows and local issues -- including restricted fiscal space, slowing consumption growth and the liquidity squeeze at non-bank finance firms,” Shyamsunder Bhat, chief investment officer at Exide Life Insurance Co.
Only two -- Infosys and Bajaj Auto -- of the 31 Sensex members declined. That’s the broadest increase since mid-December. The S&P BSE MidCap Index jumped 3.6%, the most since October.All 19 sector indexes compiled by BSE Ltd. gained, paced by a gauge of energy stocks.The NSE Volatility Index plunged as much 30%, the steepest decline since May 2014 when Modi swept to power with the biggest mandate in three decades. Rupee’s one-month volatility collapses 114 basis points, most May 2014
Morgan Stanley (Jonathan Garner, chief strategist for Asia and emerging markets)
Bullish on Indian equities and cautious about markets like ChinaEconomy is primed for re-acceleration after a series of shocks including GST and demonetizationEarnings growth will accelerate from 2% on a trailing year basis to 20% and that’s a key driver of our Sensex target of 42,000 (from 38,691 currently). It is a better earnings story that we have going for India than we have for other EMs
CLSA India (Mahesh Nandurkar and Abhinav Sinha, analysts)
Possible strong mandate for Modi means concerns on populist steps such as cash transfers and farm-loan waivers will probably decline, which is good news for government bondsA victory for BJP-led coalition, as signaled by exit polls, will bring back local fund flows to equities, which is good news for mid-cap stocks
Bank of America Merrill Lynch (Jayesh Mehta, country treasurer)
Even though these are exit polls and we still need to wait until the actual results, this outcome will be taken positively by marketsA government led by the BJP will ensure continuity in economic policy and investors like that
RBL Bank Ltd. (Rajni Thakur, an economist)
The currency may gain as much as 60 paise Monday if the RBI doesn’t intervene to check the appreciation, and the rupee will immediately move to levels of 68/USD in next two-three days if this trend continuesEquity markets will see momentum building up over the next two months if actual election results are in line with what exit polls show
Indianivesh Securities Ltd. (Dharmesh Kant, head retail research)
We expect the positive momentum seen today to continue till the actual results are declared. After that, the index will try and consolidate gains while the broader indices will see actionIf the actual results are close to what exit polls indicate, we expect beaten down mid and small cap stocks to take center stage. The rally has potential to throw up multi-bagger stocks from the mid-cap segment
TCG Advisory Pvt. (Chakri Lokapriya, chief investment officer)
A Modi win will ensure that the economic reforms process that started with the goods and services tax and the bankruptcy code will continue. This will ensure economic recovery and growth We will advise investors to jump in as it is uptick time and Modi again.
--With assistance from Anto Antony and Paresh Jatakia.
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