Gaining for the second consecutive session, the Sensex ended 22.81 points or 0.1% higher at 21,832.61 and the Nifty closed 12.45 points or 0.2% higher at 6,516.65. Meanwhile, the rupee remained steady at 61.20 to the dollar with foreign institutional investors (FIIs) having bought $6.3 billion of debt since the start of the year, compared with $2.3 billion in the same period last year.
FIIs have been betting heavily on the BJPs Narendra Modi to lead the next government at the Centre. They were net buyers for the fifth consecutive session, after the latest opinion poll showed the BJP-led NDA ahead of other parties in most Indian states. With Tuesdays buying, FIIs have bought $1.84 billion in the last 23 sessions. Money, however, is moving out of emerging market (EM) funds, EPFR Global data for the week ended March 12 shows, with EM funds posting net outflows for a record 20th week at $2.51 billion.
Rakesh Arora, MD and head of research, Macquarie Capital Securities, observed that while the outcome of elections in May was anybodys guess, markets appear to be agreeing with recent opinion polls that suggest a significant number of seats for the BJP-led NDA, which may enable it to form a stable government. Macquaries year-end Nifty target for such a scenario is 7,200, Arora said.
The rally was a broad one with the BSE Mid-cap index closing 0.95% higher at 6,719.37 while the Small-cap index advanced 0.987% to 6,691.68.
The opinion poll conducted by NDTV, in collaboration with Hansa Research Centre, suggests that the NDA will win 229 seats, UPA 129 and others 130 in the upcoming general elections.
Overall, the Bharatiya Janata Party stands to win 195 and the Congress 106 seats out of the 543 Lok Sabha constituencies, the opinion poll showed.
The Sensex is valued at 13.9 times estimated 12-month earnings, compared with the average multiple of 14.5 over the past five years. The MSCI Emerging Markets Index trades at 10 times, data compiled by Bloomberg show.
The markets are more focused on the election outcome than any global factor. The rally is likely to sustain as long as there is no challenge to the expectations that Modi will come to power. From current levels, Nifty can be trading between 6,800 and 6,900 on the eve of election results, said Raamdeo Agrawal, joint MD, Motilal Oswal Financial Services.
The Dow Jones Industrial Average rose more than 1% and the US equities ended the five-day losing streak on Monday on reports that a referendum over Crimea was passed without violence.
Most major Asian indices ended up 0.5-1% on Tuesday. European markets were up 1% and US futures were trading up 1% after Vladimir Putin said Russia is not seeking to split Ukraine and called for an end to Cold War rhetoric.
Although markets have, since the start of the year, been focused principally on economic data and monetary policy, the Ukraine crisis is a reminder of the power of politics to drive sentiment. Nevertheless, political risk appears to remain primarily country-specific, including Russia rather than systemic, said Alastair Newton, MD and senior political analyst, Nomura International.
Ukraine aside, economic data and events in China still seem to be the biggest movers of risk on/risk off sentiment for now at least, Newton added.