Opinion polls from January through April suggest steady gains for the BJP-led NDA and we think markets are pricing in around 230 seats, which is also our base case, read the note by Rakesh Arora and Arjun Bhattacharya.
The brokerage argued that Indian market's current valuations have headroom to expand on a stable government, citing the 2009 election outcome.
A stable government in 2009 rerated markets by 27% and they sustained an average 16.5x multiple for the next 18 months. We think multiples still have room to move up over the next few months from the current 13.8x to around 16x or ~15% higher, noted the report.
While Macquarie acknowledged that exit polls are usually not reflective of the exact numbers and are expected to simply provide a sense of the direction of the results, unlike 2009, the polls are very obvious. It said the exit poll on May 12, 2014, will set the tone for the market, which has already rallied 9% in the last six-months, but is consolidating in the last few weeks, reflecting a wait and see mode.
The brokerage reasoned that the impending election results may not be elusive, given that there is a clear anti-incumbency trend at the Centre and BJP-led NDA is the only viable alternative. It also noted that this election has around 81. 4 crore eligible voters, roughly 10 crore more than in 2009 and the percentage of votes polled so far is at a record high of 66%, implying 12 crore additional votes than 2009.
This is the same number that won the Congress Party 206 seats in 2009, which gives BJP a good chance of garnering a sizeable chunk of these additional votes, reckoned Macquarie.