 "Chart: Goldman Sachs gave a thumbs-up to India. Look how the Sensex jumped")
Indian equity markets today hit record highs after Goldman Sachs turned upbeat on India and on expectations of a Narendra Modi-led NDA alliance forming the government at the centre after next month’s elections.
While the BSE Sensex hit 22,000, the NSE Nifty crossed the 6,601 mark during intra-day trade today.
Adding to the upbeat sentiment, financial firm Goldman Sachs upgraded India to ‘overweight’ on the country’s improving current account deficit, as well as improving domestic fundamentals. It noted that the upcoming general elections in April could be an important catalyst for structural reforms and a pick-up in the investment cycle.
“The upcoming parliamentary elections could have an important bearingon policy choices and the progress of structural reforms. Adoption of more decisive and/orpro-growth policies could help boost investment activity and provide impetus to the overallgrowth cycle, in our view,” it said in a report dated 18 March.
According to brokerage Macquarie, the BSE Sensex has moved up 8% over the past month, and said that historical evidence suggests that markets could easily climb another 15-20%.
“In past elections, strong governments were greeted with rallies in the market, with stocks moving up 20-25%. Rallies such as the recent one do start 2-3 months prior to elections as expectations build up and continue to move up if election results are favourable,” said Rakesh Arora, CFA at Macquarie, in the report.
And while the outcome of elections in May is anybody’s guess, markets appear to be agreeing with recent opinion polls that suggest the BJP-led NDA alliance will win a significant number of seats, enough to form a stable government.
Macquarie predicts the Nifty could end the year at 7,200 in that situation.
The current rally is being driven predominantly by cyclical stocks from sectors such as banks, industrials and real estate.