Market blooms after exit polls see bumper harvest for BJP

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MUMBAI: Indian stocks rose 1.2% on Thursday after a series of exit polls showed that the Bharatiya Janata Party (BJP) is likely to sweep three out of four major states that went to the polls in the past few weeks, raising expectations of a Narendra Modi-led victory in general elections next year.

The BJP and its prime ministerial candidate Modi are perceived by many investors as being more business friendly and reform oriented than the current Congress-led United Progressive Alliance, and therefore, better equipped to put the Indian economy back on a high-growth trajectory.

Exit polls have forecast the BJP emerging as the leading party in Rajasthan, Madhya Pradesh, Chhattisgarh and Delhi.

Confirmation of this on Sunday, when counting is scheduled to take place, will bolster BJP's chances of victory in next year's national election, according to analysts.

"There is a lot of enthusiasm in the markets after the exit polls, which suggest a change in government at the Centre," said Nick Paulson Ellis, India head at Espirito Santo Securities. "Political change is good for the markets and economy, but one has to remember that it takes time to resolve key macro challenges."

The 30-share BSE Sensex crossed the psychological 21,000 mark on Thursday as the index surged 456 points in morning trade. However, traders who held long positions in the market booked profits at higher levels, which pulled the index lower. The Sensex closed at 20,957, up 249 points. The broader NSE Nifty touched an intraday high of 6,300 points before closing at 6,241, up 1.3%.

Foreign institutional investors (FIIs) bought shares worth Rs1,151 crore, while domestic institutional investors were net sellers to the tune of Rs674 crore on Thursday, as per provisional data from exchange.

"If the election results are in line with exit polls, then it would be positive for the markets," said a Bank of America Merrill Lynch report. "The market is looking for a strong, stable government post 2014 elections and it seems these results will likely make the market think that BJP could emerge as the lead party in the 2014 elections."

India's growth slumped to a decade low of 5% in the year to March. In the first two quarters, the economy expanded 4.4% and 4.8%, respectively. Finance Minister P Chidambaram has said he expects growth in the second half to be stronger on the back of higher exports and rising rural income on account of a good monsoon.

Foreign fund managers seem to be more bullish on India than domestic investors as many are incrementally positioning for a market-friendly, favourable outcome. UBS has pegged its Nifty 2014 target at 6,900, and expects the index to trade between 5,500 and 6,900 for the year based on valuations and fiscal year 2015 corporate earnings growth estimates of 10-15%. UBS added in the report that elections are the key theme for the first half of 2014, and the recent rally implies that a Narendra Modiled BJP government is no longer viewed as a low-probability scenario.

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