Mumbai, India (BBN) – Markets cheered BJP’s landslide victory in Uttar Pradesh Assembly election with the Sensex ending the session higher by nearly 500 points and the Nifty closing at 9,087.
The 30-share BSE index Sensex ended higher by 496.40 points or 1.71 per cent at 29,442.63 and the 50-share NSE index Nifty closed up by 152.45 points or 1.71 per cent at 9,087, reports The Hindu Business Line.
Earlier in the day, the 50-share NSE index Nifty hit a new high of 9,122.75 and the Sensex soared 616 points to 29,561.93.
Among BSE sectoral indices, capital goods index was the star-performer and was up 3.06 per cent, followed by realty 2.57 per cent, consumer durables 2.4 per cent and banking 1.93 per cent.
Major Sensex gainers were ICICI Bank (+5.99 per cent), HUL (+4.54 per cent), L&T (+4.4 per cent), HDFC (+3.69 per cent) and Sun Pharma (+3.61 per cent), while the major losers were Bharti Airtel (-0.95 per cent), Axis Bank (-0.88 per cent), Coal India (-0.76 per cent), GAIL (-0.59 per cent) and Bajaj Auto (-0.2 per cent).
Meanwhile, the rupee strengthened to as much as 66.13 per dollar, its strongest level since April last year, after markets were closed on Monday for a public holiday.
Domestic sentiment was buoyed as investors saw Prime Minister Narendra Modi’s landslide victory in Uttar Pradesh as endorsing his economic reform agenda.
This stunning victory has once again reiterated the role of the unbeatable combination of Prime Minister Narendra Modi and party president Amit Shah.
BJP’s decisive victory in Uttar Pradesh and Uttarkhand Assembly polls will empower the saffron party in the selection of the next presidential candidate when Pranab Mukherjee retires in July.
Also, better than expected industrial output numbers boosted the domestic sentiment. IIP (index of industrial production) in January bounced back by expanding 2.7 per cent year-on-year.
Foreign and domestic investors, who have been supporting the market rally, will interpret the win as an indication that economic policy reforms will get an impetus.
The likelihood that the BJP is a strong contender in the 2019 Lok Sabha elections will also be taken positively by foreign investors, who prefer continuation and stability in policy-making.
Equity markets have also been enthused by macro data and company earnings in recent months that showed that demonetisation had a negligible impact on the formal sector.
Also, global events such as the US Federal Reserve’s next move on interest rates and crude oil prices could play a larger role in determining stock market movements.
Analysts now expect Modi will be emboldened to embark on more reforms including reforming the retail sector, easing labour laws, and cleaning up bad debt at banks.
But any further gains will be tempered by concerns about valuations as well as global risks, including how much the US Federal Reserve will raise US interest rates this year.
“The results ensure sustainability of government policies for the next two years without much political noise,” said Ashish Vaidya, executive director and head of trading at DBS Bank in Mumbai.
“However, all financial markets will be driven by global factors.
We have to also wait and see when domestic private investment picks up as on-the-ground growth hasn’t really improved much.”
Modi has long held strong appeal for investors after winning overwhelmingly in 2014 by pledging ambitious economic reforms.
The prime minister has already delivered on some measures, including unveiling a national goods and services tax that will be rolled out this year.
But investors will seek more action, especially in reviving private investments and easing the cost of doing business.
Sentiment is also likely to be tempered given the central bank is expected to hold interest rates this year due to concerns about inflation.
Shares were already trading at a price-to-earnings ratio of 19.85 over the next 12 months, compared with their five-year historic average of 17.8.