With the exit polls predicting an overwhelming election victory for the BJP-NDA coalition, the renewed investor confidence could fuel a short term market rally, but the investors would look forward to the immediate follow through on big bang reforms for further upside triggers, said Nilesh Shak, MD Kotak Mahindra AMC.
Earlier today, most exit polls showed Prime Minister Narendra Modi’s BJP-NDA government getting re-elected with over 350 Lok Sabha seats -- either meeting or beating most brokerages’ bull case scenarios for the potential stock market trigger.
The immediate reaction in the share market is expected to be positive, though a circuit up on Monday or Tuesday seems unlikely, said Shah in an interview with Moneycontrol. “The markets were pricing in the continuity of the government, and at the current valuations, markets are pricing not only the continuity but are also looking forward to announcements of big bang reforms in the first 100 days,” said Shah.
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While the traders that have recently booked profits may return to the markets on the exit poll, the longer term investors had held on to their positions, betting on the continuity of the government and policy reforms. “There are very few investors who are waiting on the fence,” said Shah when asked about foreign investors waiting on the sidelines.
"From a trader's point of view, some profit booking or reduction of positions has happened. They are likely to go long on the exit poll and results, in anticipation of bigger reforms," said Shah.
However, he noted that the market is currently trading at a premium compared to other emerging markets, with optimistic valuations that hinge on significant reforms being announced post-election. And thus, the medium to long-term drivers of the market will largely depend on the new government's ability to deliver on its promises.
As for the domestic investors, they have already shown confidence in the Indian markets through record inflows, particularly in equity mutual funds. "In mutual funds, we are seeing SIP culture taking off, because of which there is a regular funds inflow."
On the question of whether the verdict would prompt foreign investors to now choose India over China for investments, Shah said, “Most large reputed investors have positions in both China and India. If we can ensure that our weightage in the MSCI Emerging Market Index continues to rise, there is no way foreigners will ignore India with this kind of mandate and the reforms we are taking.”
He explained that potential upgrades, such as Korea moving from the MSCI Emerging Market Index to the developed market index, could increase India's weightage, attracting more foreign investment.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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