Exit polls, election outcome to set tone for markets; Sebi, stock exchanges beef up surveillance to check manipulative activities

Equities, rupee and bonds are set to rally on Monday after almost all exit polls suggested that the Prime Minister Narendra Modi-led National Democratic Alliance (NDA) was likely to secure a clear mandate at the 2019 national elections.

Equity markets will track election trends this week as the exit polls showed that the ruling NDA is likely to come back to power.

The results of the seven-phase polls will come out on Thursday and experts opined that markets have partly discounted exit poll outcome in the last few days.

Most exit polls on Sunday forecast another term for Prime Minister Narendra Modi, with some of them projecting that BJP-led NDA will get more than 300 seats to comfortably cross the majority mark of 272 in the Lok Sabha.

Investors expect the Nifty to break the resistance seen at 11,800 levels and possibly surge to 12,200 in coming weeks provided the actual results are in-line with the exit polls.

The broader NSE index ended 1.33 percent higher at 11,407.15 on Friday, while the benchmark BSE index closed up 1.44 percent at 37,930.77. Both indexes gained over 1 percent for the week.

Representational image. Reuters

“The market was working with the assumption that the NDA would need to ally with other parties to form the government. To the extent the exit polls are predicting an outright victory for the NDA, we could see a 5-10 percent equity market rally in the coming weeks,” said Saurabh Mukherjea, founder of Marcellus Investment Managers.

Votes are set to be counted on 23 May and exit polls suggest a better showing for the NDA than what was expected in recent weeks.

The NDA is projected to win 287 seats in the 545-member lower house of parliament followed by 128 for the Congress party-led Opposition alliance, the C-Voter exit poll showed.

To rule, a party needs the support of 272 lawmakers.

Bourses may be indecisive, say analysts

Regulator Sebi and stock exchanges have beefed up their surveillance mechanism to check any manipulative activities in the market this week in view of the high-octane election-related events lined up.

"Most exit polls have predicted NDA to win the Lok Sabha elections with a good margin. This was partly discounted in the markets over the last few days. The street would like it even more if the BJP on its own gets a majority in the Lok Sabha.

"However, going by the way the exit polls in the last two elections were off the mark from the actual numbers, the markets would get excited but not super excited," said Deepak Jasani, Head, Retail Research.

Investors should also brace for bouts of volatility in view of the high-octane election-related events, the analysts said.

Experts are of the opinion that bourses may be indecisive till the final election outcome is known.

There can be sharp movement in the markets but the exit polls bring some decisiveness on the table as well, he added.

"This week is going to be the most happening of the year wherein all eyes would be glued to not 'stock quotes' but 'vote quotes'," said Jimeet Modi, Founder, and CEO, SAMCO Securities & StockNote.

Jagannadham Thunuguntla, senior vice president and head of research at Centrum Wealth Management said the likely “continuation of policies and reforms is an added comfort,” for the markets.

Investors expect another 2-3 percent rally possible in the stock market over the next 3-4 days but said further moves would depend on the actual election outcome and fundamentals.

Quarterly earnings would also impact trading as some major companies are scheduled to announce their financial report card this week, including Tata Motors, Canara Bank and Cipla.

Besides, the US-China trade-related issues, crude oil prices, rupee movement, and foreign funds trend would influence trading sentiment, they added.

During the last week, the BSE Sensex gained 467.78 points or 1.24 percent.

On Friday, the 30-share benchmark closed 537.29 points, or 1.44 percent, higher at 37,930.77. Similarly, the broader Nifty rose 150.05 points, or 1.33 percent, to settle at 11,407.15.

"Indian markets have shown tremendous strength before the long-awaited exit polls, despite the ongoing ambiguity in US-China trade talks," said Jagannadham Thunuguntla, Senior VP and Head of Research (Wealth), Centrum Broking Limited.

Bonds and rupee

“The underlying backdrop for bonds has been bullish with a soft growth versus inflation trade-off both globally and locally,” said Suyash Choudhary, head of fixed income at IDFC Asset Management.

Choudhary said a stable government that helps preserve India’s risk perception would help the Reserve Bank of India respond decisively to the underlying macro dynamic.

“We expect this decisiveness to first reflect in a more proactive liquidity stance. This will be more bullish for bonds than merely a rate cut”.

On Friday, the benchmark 10-year bond yield closed at 7.36 percent, down 2 basis points from its Thursday’s close. It is expected to open around 7.32 percent on Monday.

The partially convertible rupee had closed at 70.22 per dollar on Friday versus its previous close of 70.0350.

“After the initial move, however, markets will focus on the fundamentals. Sanity would prevail rather than emotions,” said Swarup Mohanty, CEO at Mirae Asset Global Investments in India.

--With agency inputs