The outcome is beyond the market's expectation and will be a sentimental boost, say analysts.
The markets are likely to head higher in the coming week, with the Bharatiya Janata Party registering a massive win in the key state of Uttar Pradesh.
The outcome of polls in Punjab, UP, Goa, Uttarakhand and Manipur could create distractions (or positives) for the government and will be interpreted as a referendum on the government’s demonetisation drive, analysts say.
The election outcome in UP (the biggest state by population), was being dubbed as the semi–final to the 2019 general elections, and appeared to be heading towards a close fight.
Here’s how market experts interpret the poll results and its implication for the government’s reform agenda and the markets:
Deven Choksey
Managing Director, KR Choksey Securities
It was mostly expected that the BJP will come to power in UP. However, with the BJP coming to power with such a thumping majority suggests that the reform process will accelerate in Parliament.
The opposition parties are getting reduced to decimals. That’s the good part politics. For any country to progress, there should be a constructive growth programme.
Unfortunately, our opposition parties are following a destructive way of functioning in Parliament. Now, the election results suggest that a constructive programme will happen going ahead.
Given the growth potential we are assuming in the economy, I would not be surprised to see the Nifty50 move up 10 per cent from here on over the next 6-12 months.
G Chokkalingam
Founder& Managing Director, Equinomics Research & Advisor
The outcome is beyond the market’s expectation and will be a sentimental boost. The victory margin suggests that the market will remain in a long-term bull run.
One can expect stability for the next five years, provided the economy and corporate earnings pick up. Even without a majority in the Rajya Sabha, the government could push through key reforms like the goods and services tax (GST) bill and the Insurance Bill.
That apart, there was the demonetisation. Going ahead, I expect more such initiatives from the government.
Ajay Bodke
CEO & Chief Portfolio Manager –PMS, Prabhudas Lilladher
The BJP’s emphatic victory in the politically-crucial state of UP would embolden the prime minister in aggressively expediting key structural economic reforms that have been hobbling India’s growth impulses.
Mr Modi has achieved a golden mean by emphasising on economic reforms with equity-for-all as its fulcrum.
On one hand, he has focused on structural macro-economic reforms like fiscal prudence, inflation control and government-led infrastructure development in roads and railways, and on the other, he has given equal importance to pro-poor transformational economic policies that touch the lives of the marginalised and downtrodden cutting across castes and thereby broadened his party’s support base through schemes like Mudra loans, LPG cylinders and housing-for-all.
The equity market would be rejoiced with this outcome and scale a new high ably supported by a torrent of domestic liquidity. Though valuations remain expensive markets would pin its hope on recovery of as-yet tepid corporate earnings over the next few quarters and the passage of GST.
A K Prabhakar
Head of research at IDBI Capital
People have voted in favour of the reform process. This was also the case in the recent Maharashtra civic polls.
The election outcome, especially in UP, is a positive as the BJP has won a key state. In this backdrop, the government’s reform process will take a front seat going ahead. One can also see more initiatives like demonetisation going ahead.
There was speculation earlier of the government cracking down on dubious investments real estate and gold. These are two areas where government action can be expected now. The government will now have more courage to go ahead with its reform agenda going ahead.
The real market rally will start now, and I expect the markets to scale to all-time highs soon. If the Nifty50 index is able to breach its previous high of 9,119 levels, I expect it to hit 12,000 mark by March 2018.
Vijay Singhania
Founder-director, Trade Smart Online
Markets are expected to break into a new zone with the BJP achieving a landslide victory in Uttar Pradesh and Uttarakand. This win will allow Prime Minister Narendra Modi more say in the Rajya Sabha and will take forward key economic reforms. We could see the Nifty-50 swing 150-300 points in the coming week.
