Battle for Gujarat: A wake up call for BJP; Sensex recovers after 700-points fall

The S&P BSE Sensex staged a massive recovery, following Gujarat and Himachal Pradesh assembly polls’ outcome showing a BJP victory, while Rahul Gandhi-led opposition Congress was seen getting seats at par with expectations. But the margin for victory was seen slightly lower than average of exit polls.

The S&P BSE Sensex had slipped below Mount 33K, a downtick or over 700 points in the opening trade on Monday after early voting counts indicated a close contest between BJP and the Congress in Gujarat.

Most of the exit polls were predicting a comfortable win for the incumbent party but the actual results came as a surprise to markets which gave strength to bears to regain control of D-Street in the morning. But the BJP victory in both states reversed this trend and the markets turned green, signalling relief to investors.

The Nifty bounced back yet again from its support levels just above 10,000 while the S&P BSE Sensex recovers a little over 600 points.

The Assembly election results have something for everyone. A lower than expected seats could make the Modi-led BJP rethink on its strategy before the general elections 2019 while the oppositions managed to put up a good show despite odds, suggest experts.

The dip will be more or less bought into because there is plenty of money waiting on sidelines and a BJP win will have a positive interpretation for the markets even though it might not be a thumping victory.

“The outcome is a huge wakeup call. It not just one state but it is the home state. There clear signs of alarm if not panic. We can’t run away from the fact that there were few things which went wrong and the BJP underestimated the resurgence of Congress
party,” N Jayakumar, MD, Prime Securities told CNBC-TV18.

“Going forward, the opposition party will unite big time and that could pose a worry for the BJP. For the markets, the PE multiple could contract and more important the flow of money needs to continue to hold these lofty valuations in the market,” he said.

According to data from BSE, local insurers, pension funds, and mutual funds were net buyers of Indian shares worth Rs74,728.35 crore till November 2017, against Rs35,526.37 crore in all of 2016, said a report.

The flow of money from domestic institutional investors (DIIs) will be important to steer the near-term trend in the markets because foreign institutional investors (FIIs) have focused more on other emerging markets (EMs) other than India.

“The market reaction was contrary to what most exit polls were predicting. Going by my experience, I don’t see a panic nor do I see huge withdrawals after the election outcome. But, the flow of money which is coming into the market i.e. Rs20000-25000
crore/month could get taper down,” Madhusudan Kela, Market Veteran said in an interview with CNBC-TV18.

“Also, a lot of investors who were sitting on the sidelines may use the correction as a buying opportunity. Also, the rally that we have seen in Indian markets is global. Dow Jones is up 25% and Nifty is up 26 YTD. Till the time global markets are in full swing India unlikely to see a major correction,” he said.