With the stunning victory of the BJP in the UP assembly elections, market observers expect the central government to push through its important legislations and other reform measures to revive the economy.
With the stunning victory of the Bharatiya Janata Party in the Uttar Pradesh assembly elections, market observers expect the central government to push through its important legislations and other reform measures to revive the economy. Markets on Tuesday cheered the outcome of UP polls with the Nifty 50 index hitting an all-time high at 9122 points before closing at 9087 and the benchmark Sensex gaining more than 1.7%. The Nifty Futures traded on Singapore Stock Exchange on Monday rose by 2.5% and closed at 9,196, which led to expectations of a similar gain on Tuesday.
Market participants said they expect the government to go ahead with labour reforms, increase spending in infrastructure, roll-out of GST, and use the new Benami Property Act to pursue undisclosed holdings.
The government could pursue a slew of pro-poor measures including increased rural and rural spends, loan waivers, interest-free loans to farmers among other things.
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However, market participants were cautious about the sustainability of the rally as the market has historically struggled to give decent returns from this level. In a note to investors, Bank of America Merril Lynch said the market is trading at above average multiples and is susceptible to global risks. The report further said that March quarter may see some effect of demonetisation and farm loan waivers could affect PSU banks negatively.
The Nifty is trading at 22.32 times of its previous 12-month earnings, whereas South Korea’s KOSPI is trading 17.16 times, Taiwan’s Taiex is trading at 16.4 times and Shanghai Composite Index is at 18.50 times. Nifty has risen by 14% from its December lows on the back of good December quarter results and sustained inflows from FPIs.