Sensex, Nifty rally as exit polls indicate BJP win in Himachal, Gujarat elections

Mumbai: India’s benchmark indices rallied on Friday after most exit polls suggested a clear victory for the Bharatiya Janata Party (BJP) in both Himachal Pradesh and Gujarat elections.

The Sensex ended at 33,462.97 points, up 216.27 points or 0.65%, while the 50-share Nifty index was up 81.15 points or 0.79% closing at 10,333.25 points.

According to Jayant Manglik, president (retail distribution) at Religare Securities Ltd, sentiment was boosted mainly in reaction to the exit polls indicating easy wins for BJP in both Gujarat and Himachal Pradesh state elections. “Almost all the sectoral indices participated in the move led by the metals, realty and auto pack. Sharp decline in the volatility index also helped soothe participants’ nerves,” he added.

The exit polls were conducted by media organization after the final phase of polling on 14 December.

However, though these are projections and actual counting of votes is scheduled to take place on 18 December, analysts said the outcome underlines that disruptions due to government reforms like demonetization and implementation of the goods and services tax (GST) have not influenced the polls.

“A potentially convincing win for the BJP in Gujarat—a state perceived to be the most impacted by GST and demonetization—will boost market sentiment,” said CLSA in a note on 14 December.

It said that an outright loss or a weaker-than-expected performance though could be interpreted negatively. The markets may start believing that populist spending could rise ahead of the 2019 general election, which could further pressure the bonds markets

Most exit polls have predicted a simple majority for the BJP with over 100 seats in Gujarat, with one exit poll predicting a two-thirds majority. In Himachal Pradesh, exit polls have predicted a comfortable win for the party.

According to Kotak Institutional Equities, a victory for the BJP will be received well by the market while a surprise defeat would be a large negative for the market.

“In the former case, we see a modest rally and in the latter, a moderate correction as the market will also start focusing on India’s weakening macro position,” the research firm said in a note on 15 December.

However, despite the widespread euphoria, foreign investors have been selling Indian equities in December. This month, foreign institutional investors sold shares worth $369.3 million, while they have pumped in a total $8.3 billion this year so far. Domestic institutional investors including mutual funds and insurance companies have bought Indian equities worth Rs3,956.13 crore in December and shares worth Rs86,138.34 crore in 2017 so far.

Riding high on the liquidity wave, the markets have seen a massive rally this year with the Sensex and Nifty rising around 26% while MSCI India gained 24.35% and MSCI World was up 12.2%.