Stock markets in a bull run, BJP well placed to usher in reforms, say experts

The decisive victory for the Bharatiya Janata Party (BJP) gives it enough room to kick start economic reforms in a major way, say leading fund managers and analysts.

The markets, which hit new lifetime highs on Friday, have entered a bull run, experts said, with India - compared to other emerging economies – well placed to attract more investment from overseas investors.

The markets are, however, likely to turn more volatile in coming 2-3 days, they warned, as
investors, who missed the run-up, scramble for an entry and some chose to take profit.

The Sensex and the Nifty have both run up over ten percent in the last week, after exit polls
signaled to a BJP victory early this week.

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The benchmark 30-share Sensex index hit a new lifetime high of 25,375.63 points, before closing the day at 24,121.74 points, up 0.90 percent. The Nifty rose to a day’s high of 7,563.5 points in morning trade but also retraced to end at 7,203 points, up 1.12 percent.

At their peak, over 220 stocks hit their 52 week highs, which included infrastructure, banking, oil and energy stocks.

India’s economy, hurt by high inflation, a currency crisis, weak industrial growth and slowing reforms last year, is expected to grow by just 4.9 percent in the year to March 2014, according to industry estimates.

The rupee, which was one of the worst hit Asian currencies last year, rose to a day’s high of 58.62 to the dollar, on optimism that the BJP would introduce reforms to boost growth.

“After two decades of fractured mandates, the people of India have for the first time given a massively decisive verdict not just in favour of one pre-poll coalition, but in favour of one single party,” said Ajay Bodke, head (investment strategist) with brokerage Prabhudas Lilladher.

Bodke said the markets could move up further, basing this on the fast that India’s markets were in a bearish phase through the global financial crisis of 2008, the incumbent Congress party’s slackness of reforms and the currency crisis India faced last year.

“Hence the excuse that a coalition government could hamper an aggressive rollout of reforms - which are economically necessary but political unpalatable – cannot be used by the incumbent government to procrastinate on reforms, whether economic, administrative or judicial,” Bodke said.

Gautam Trivedi, head of equities at Religare Securities said: “The rally may be seen as fast and furious, but it is clear that the markets are in a bull run,” told Forbes India.

“Stocks will trend up further. Going forward India is best placed to attract foreign investment, as other emerging markets struggle, whether politically or economically,” Trivedi said.

Nitin Jain, CEO (capital markets) with Edelweiss Broking said: “The markets were positively surprised with the massive victory. They believe that Mr. Modi is pro-reform and an ideas man.”

Jain said the markets might have outstretched themselves in the sharp run-up to the election verdict. “The hot money chasing stocks and the building up of expectations may cool off. The next 2-3 trading days could see some cool-off for the markets,” Jain told Forbes India.

“Equities are such an under-owned asset that some level of panic may be seen as people scramble to buy,” he said. Jain said the “honeymoon period” for the BJP would end in three months, after which investors would start to look for action measures to revive the economy.