Assembly Elections: Here’s what analysts feel about market’s prospects

With the Bharatiya Janata Party (BJP) winning key assembly elections in four out of the five states that went to polls, the markets reacted very positively and clocked record highs. On Tuesday, the Sensex ended 496 points higher, while the Nifty closed above 9000-mark for the first time ever.

Analysts overall are upbeat on the markets based on the election outcome, but are also cautious ahead of the earnings as well as the arithmetic in the Upper House of the Parliament.

Jefferies feels that the election victory is more for social, political and economic milieu rather than for the markets. It concludes against developing myths viz. —there may not be a more than a pop for the market in the near term and that the policies ahead could be market negative.

CLSA, meanwhile, expects the government’s plans of focus on long term themes, housing for all by 2022 and the doubling of farm incomes over five years to gather steam. “We expect market multiples to remain elevated as domestic flows are likely to remain robust,” it said in a report.

Citi feels that the development would be a near term positive, but the focus is now likely to shift towards global events. It observed that domestic cyclicals and mid-caps will continue to do well.

JPMorgan had expected the market to open 1-2 percent higher. It believed that the scale of the victory was something that the Street could cheer more. However, it said that given the valuations, it does not expect markets to be driven by re-rating going forward. “We expect that here onwards, earnings will have to do the heavy-lifting,” the research firm said in a report.

Meanwhile, Nomura does not see a major impact of the election results on reforms and the economic outlook. On the arithmetic in the Rajya Sabha, it highlighted that the BJP will still need to build consensus to pass legislative reforms as has been the case.

Credit Suisse, on the other hand, expects prospects of the Upper House to improve, even if the control is likely only after 2020. It sees medium-term economic prospects to be better, though the market impact could be fleeting. Limitations in the state capacity may be hard to overcome quickly and the economic impact could be years away. Likewise, it could be years before the changes show up in earnings.