With stock market indices hitting all-time highs after the exit polls predicted a landslide victory for the BJP-led NDA government, experts are of the view that if the final results pan out in the same manner, the rally could have more legs.
Said Prashant Jain, director, 3P Investment Managers: “Markets are reflecting and pricing in India’s strong growth prospects and fundamentals, stability and continuity in economic policies and a pickup in investments. The FY24 GDP growth of 8.2% is meaningfully higher than the last 10-year average and is indicative of improved growth momentum.”
He believes that tailwinds from rising manufacturing (China +1, competitive wages in India, improving business climate etc) and services (acceptance of remote working, availability of talent, competitive wages etc) are structural and should support higher growth for many years. Improvement in physical, digital infrastructure and regulatory framework driven by multiple reforms (GST, corporate tax cut, Rera/IBC, PLI etc) have improved the investment climate.
Elara Securities said in a report that a short market rally is on the cards on the day of the results (June 4), especially if final numbers align closely with those predicted by the exit polls. It added that traders and foreign portfolio investors (FPIs), which had trimmed their positions ahead of elections, will go long, bolstering markets during the week.
While this return in FPI interest is expected to continue post-election results, it will be gradual and as an effect of political stability, India’s economic growth prospects compared with other emerging markets, a stable currency, and a likely global interest rate cut cycle, market experts said.
Even in the case of a minor disappointment if the NDA ends up with lower than 340-360 seats, there could be a knee-jerk reaction, said Dhiraj Relli, managing director and CEO, HDFC Securities. But he believes that the euphoria may settle down in a couple of days, and the focus may shift to the policy announcements in the first 100 days of the new government.
Valuations, of course, are a concern. However, some market participants see earnings growth and the country’s speedy economic growth to make these valuations sustainable going ahead.
“Nobody is arguing that India is an inexpensive market. We have always been expensive compared to other emerging market peers. But what India has offered traditionally is a much faster growth rate, whether it is in terms of earnings or GDP,” UR Bhat, co-founder of Alphaniti Fintech, said. “If earning growth is faster than what the market is factoring, these valuations are not entirely unsustainable,” he added.
Lakshmi Iyer, CEO-investment & strategy, Kotak Alternate Asset Managers, is of the view that that going forward, while the momentum may sustain, we may see consolidation before the next decisive upmove in the index. “Markets will turn attention to global factors and development on the monsoon front domestically,” she said.