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NSE, BSE to extend trade timings soonSix cos lose over Rs 19k cr in m-capJet Airways, Sesa Goa to raise $900 millionHow to pick a stock in a downturn?

: Nomura Securities

As was to be expected, the stock market has reacted to this election result in a very positive manner. A 17% move on the open shows the expectations of the market regarding the mandate given to the UPA and on the relatively unfettered way in which the reform process is likely to unfold. Typically, the reaction of the markets in the past has been more muted (albeit positive in general) as the market tends to react positively to a resolution of the uncertainty related to elections.

In India’s five general elections in the past 18 years, six-month market returns following elections have been the opposite of the 1-month pre-election returns in four instances. The short-term euphoria or disappointment is ultimately taken over by economic reality. Even in the last election, when the UPA and the

Left combined came to power (which resulted in a huge negative reaction of the market on Day 1 – lower circuit compared to the upper circuits in the market today), it did not prevent the market from rallying later on.

From the equity perspective, near-term valuations have become rich and the performance relative to other major Asian markets is now decidedly superior.

Given low fiscal headroom and the global slowdown, any sudden acceleration in growth on account of policy is unlikely. We advise caution at present levels.

Motilal Oswal Securities

The immediate focus of investors would shift to the Budget (to be presented within 45 days of government formation), which will be the first formal communication of the economic agenda of the new government. The challenges are many – provide stimulus to growth, correct fiscal imbalances and create means to raise resources to meet the first two challenges.

We expect Indian equities to witness re-rating, driven by the outcome of the elections and expect the base P/E to move up to 15x FY10E EPS (Sensex levels of around 13,500).

We expect FY11 earnings to get upgraded on the back of reforms to attract higher foreign investments, greater corporate and consumer confidence, and increased investments in infrastructure.