Stock markets are bracing this week for ripples coming from Uttar Pradesh with several marketmen raising concerns over the Centre’s future reform policies in view of anointment of hardliner Yogi Adityanath as the Chief Minister of the country’s most populous state. Marketmen are particularly concerned about any large-scale selling by the foreign investors who tend to react promptly to any such development. Any rough sailing ahead for the markets would follow a sharp surge in the recent weeks, including due to a huge mandate given to the BJP in some states, including in UP, which many experts have attributed to the party’s development plank despite its well known pro-Hindutva agenda. The benchmark indices including Sensex and Nifty have been flirting with record high levels with huge gains in stocks across the sectors, while some experts warned that the surprise selection of Yogi Adityanath as the UP Chief Minister might trigger profit booking including by large foreign investors.
The Nifty had ended at a new peak of 9,160 on last Friday while the Sensex also notched up significant gains to close at 29,648.99.
However, Some analysts are hopeful that macroeconomic factors such as further movement on the GST rollout decision would eventually decide the course for the stock market, after a temporary hit from the development in UP. Abnish Kumar Sudhanshu, Director and Research Head at Amrapali Aadya Trading & Investments, said last week began with the landslide victory for BJP in UP assembly elections and it fuelled a rally in the markets on expectation of several stalled projects and reforms getting their way for clearance.
The markets even ignored the interest rate hike by the US Federal Reserve and a rally in rupee further fuelled the indices. “Sweeping victory in country’s largest state Uttar Pradesh provided strength to rupee on the back of stable government along with hope of more and more bold reforms coming in future without any disturbance in Parliament,” he said.
Further, FIIs who had turned to net sellers in the domestic debt as well as equity market post demonetisation, have been taking return flight after seeing the current India scenario, Sudhanshu said. On the current week trading, he said that further clearance to the GST rollout could give some clue to the market. “We can expect news related to reforms in infrastructure, healthcare and banking to keep proving road to the already surging indices. “Off late, FIIs have become net buyer in the market so it would be interesting to watch sustainable buying pattern, which can pour the liquidity in the market, hence generating positive sentiments,” he said.
Vinod Nair, Head of Research at Geojit Financial Services, said a stupendous victory for the BJP in the state elections created a euphoria in the domestic markets last week and Nifty broke its major resistance level of 9000 and continued its upward journey breaking all the psychological levels. Stating that the under-current was strong as new money from both foreign and domestic investors continued to pour in despite high valuations, he said the current buoyancy in domestic market was largely sentimental driven by political and policy certainty.
“This perhaps has led to reversal in FII inflows despite peak valuation. Valuation may continue to be high unless being impacted by external or domestic factors,” he said.
He also warned that the inflationary trend was hinting towards RBI following a prolonged neutral stance in the medium term and GST rollout from July brings possibilities of de-stocking and procedural obstacle which is likely to impact earnings in the near term. “For the week ahead, market will look for more cues on GST rates which is expected to see stock or sector specific actions,” he added.