Mumbai, Dec.9: Stock market indices were at a record high on Monday after the Bharatiya Janata Party (BJP), seen by investors as being more business friendly, swept three out of four states where polls were held from November 11 to December 4.
The Sensex rose more than two percent to surpass its previous all-time peak hit on November 3, capping a remarkable turnaround from a few months ago when the country was gripped by its worst market crisis since 1991.
The Sensex gained as much as 2.3 percent to a record high of 21,483.74 points, while the broader Nifty rose as much as 2.5 percent to an all-time high of 6,415.25, surpassing its previous peak hit in January 2008.
Sectors such as infrastructure and construction, seen as most benefitting from a potential BJP victory in elections next year, did especially well.
Meanwhile, the partially convertible rupee rose to as high as 60.84 to the dollar, its strongest level since August 12, when the currency was headed to a series of record lows.
The results were seen bolstering the chances of the Bharatiya Janata Party (BJP) and its prime minister candidate Narendra Modi in general elections due by May next year, and were widely seen as a blow to the ruling Congress Party.
Despite recent policy action by Congress, including moves to attract foreign investments, markets have been clamouring for more measures to bolster an economy growing at its slowest in a decade and to ease infrastructure bottle necks that keep inflation high.
Investors, for now, have concluded that BJP is the most likely to deliver change, analysts said.
“Current government was perceived as you know there was a time when investors said there is a policy paralysis in the country prevailing. The government is not taking any investor friendly decision and they are spending a lot of money on social schemes so people feel that in general elections which are in 2014 if this trend continues then obviously NDA (National Democratic alliance, led by main opposition Bharatiya Janata party and its allies) will come into power and that is why the markets are upbeat,” said Sunil Shah, a market expert.
Analysts attributed this Indian market euphoria to Modi wave prevalent in the country.
“Now, what market is taking out of this election is that there is a ‘Modi Wave’ in the country and Mr. Modi is perceived to be a leader who is making decisions and who represents or epitome development and that what market perception is,” added Shah.
Modi is credited with helping India’s western Gujarat’s economy achieve average yearly growth in the double digits in the past decade and he is popular among many wealthy businessmen. Foreign investors too have very high hopes from a Modi led Indian government.
Former Finance Minister Yashwant Sinha, said that sudden upsurge in the markets is not misplaced.
“The confidence the markets have reposed in the possibility of BJP led NDA government coming to power is not misplaced. There are factoring in the fact that a stable a strong determined government will take place in Delhi after the next Lok Sabha (general elections) elections.” said Sinha.
Still, analysts warned a BJP victory next year is far from guaranteed and the market rally could be capped by worries about an economy expected to grow below even the decade low of 5 percent hit in the previous fiscal year.
The Federal Reserve could also move soon to end its massive stimulus after signs of an improving U.S. economy.
Only a few months ago India was badly roiled by fears of an early end to the Fed tapering, ushering the worst market crisis since the balance of payments turmoil two decades ago.
Although India is seen as being in a stronger position after its current account deficit has narrowed to a more than four-year low, the prospect of foreign selling is a concern.
Foreign investors have bought 1 trillion rupees so far this year in shares, making these capital flows vital for India’s current account balance.
Furthermore, high inflation has forced the Reserve Bank of India to raise interest rates by half a percentage point over the previous two months. A continued spike in consumer prices in data due out on Friday could bolster views the central bank will again tighten monetary policy again this month. (ANI)