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Last Updated : Mar 07, 2019 01:51 PM IST | Source: Moneycontrol.com

We are in a pre-election rally; 42K on Sensex by Dec 2019 possible: Experts

Ridham Desai of Morgan Stanley in a report said that the market could start pricing in stronger poll outcome in coming weeks, and the broader market will likely outperform Nifty.

Kshitij Anand @kshanand

One thing which equity markets do not like is ‘uncertainty’. After the IAF attack at Balakot terrorist training camps, the market has started to price in a scenario where BJP could come back.

Well, it will not be a walk in the park for BJP-led NDA government to get a similar strength what it managed to gather in 2014, but experts feel that chances of a strong government look to be reasonable assumption now.

Market has shown resilience after muted economic data, trade tensions as well as escalating geopolitical concerns with Pakistan. Nifty managed to hold on to crucial support levels which suggests that bulls are here to stay.

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Nifty50, which reclaimed 11,000 this week for the first time since February 2019, is likely to break past crucial resistance levels in the run-up to elections, suggest experts who also feel that the broader market is likely to outperform Nifty.

Ridham Desai of Morgan Stanley in a report said that the market could start pricing in stronger poll outcome in coming weeks, and the broader market could outperform Nifty.

In the base case scenario, Morgan Stanley has put out a target of 42,000 on the Sensex for December 2019. The brokerage expects earnings growth to accelerate to 29 percent in FY19, and 26 percent in FY20.

"The bull market in the Nifty/Sensex, which began in March 2009, just completed its 10th year. This has been India’s longest and lowest bull market with a CAGR in returns of 16%. The BSE midcap index has outperformed the Nifty/Sensex with a CAGR of 18%," said the report.

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Desai further added that he likes GARP stocks, or growth at reasonable valuations, among banks, discretionary, consumption & industrials sectors. Top mid-cap stocks include IGL, Indian Hotel, Cyient, IPCA Laboratories, Prestige Estates, Apollo Hospital and Jubilant FoodWorks.

Nifty50 has bounced back from its recent low of 10,585 recorded on February 19 to reclaim 11,000 levels despite muted domestic global and local cues. The rally translates into a whopping rise of over 400 points of nearly 4 percent in just matter of days and for Sensex, it is around 800 points.

The micro data gave some cues that the growth could be around the corner which supported sentiment. The PMI numbers and the latest auto numbers have been quite strong and that means the market is beginning to sense the first green shoots of recovery in the markets.

The political narrative has changed on the elections front after the Pulwama attack and the government’s decisive attack on the terrorist training camps, suggest experts.

“Government’s decisive attack on the terrorist training camps changed the political narrative. Market admits this could be a long battle, but the government appears to be determined. That could also mean that the ruling NDA may start off the election campaign with a positive narrative in their favour. To that extent, the rally may have actually begun,” Amar Singh, Head - Advisory, Angel Broking told Moneycontrol.

“Interestingly, the rally comes on the back of Trump withdrawing the Preferential Trade status for India as well as MSCI expected to upgrade China’s weight in the MSCI-EM index leading to an automatic downgrade for India. To that extent, the pre-election rally has surely begun and there appears to be a reason for the same,” he said.

Historical Evidence:

Yes, corporate earnings are the most important driver for markets, along-with interest rates, but other factors like elections can impact markets, at least in the short term.

Interestingly, Nifty has remained in the range of 10,600-11,000 for nearly 4 months now, and in the run-up to elections, this increases the possibility of a strong pre-election rally.

“Recent geopolitical problems could not break the lower end of the range. This suggests that market internals remain strong. Any breakout should be named as Election rally as Elections in May are now the most important event that one is looking for,” Vineeta Sharma, Head of Research, Narnolia Financial Advisors Ltd told Moneycontrol.

“As we move ahead and the probability of current government becomes higher, election rally might continue,” she said.

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In the run-up to the general elections, despite nervousness, markets have always gained in 5 out of 6 elections in six months leading to the counting date, Karvy Stock Broking said in a report.

The exception was 1998 when markets were suffering on account of the Asian Financial crisis.

Similarly, strong gains were made in 1999, when markets were gaining on account of the technology boom and in 2009 when markets made strong gains 2 months in the run-up to the elections, as the world markets recovered from the global financial crisis.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Mar 7, 2019 01:51 pm
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