Mumbai, India (BBN) – Indian markets cheered the landslide victory of the BJP in Uttar Pradesh and Uttarakhand Assembly elections with the Nifty hitting a new high of 9,122.75 and the Sensex rallying 616 points to 29,561.93.
Domestic sentiment was buoyed as investors saw Prime Minister Narendra Modi’s landslide victory in the northern state of Uttar Pradesh as endorsing his economic reform agenda, reports The Hindu Business Line.
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.
At 10.50am, the 30-share BSE index Sensex surged 483.13 points or 1.67 per cent to 29,429.36 and the 50-share NSE index Nifty jumped 147.8 points or 1.65 per cent to 9,082.35.
Among BSE sectoral indices, capital goods index was the star-performer and was up 2.86 per cent, followed by bank 2.19 per cent, realty 2.05 per cent and FMCG 1.78 per cent.
Major Sensex gainers were ICICI Bank (+5.45 per cent), L&T (+4.16 per cent), HDFC (+3.53 per cent), ITC (+2.53 per cent) and Asian Paints (+2.05 per cent), while the only loser was Bharti Airtel (-0.89 per cent).
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.
Modi’s victory “is a huge confidence boost for reform and is another step on the way to a story that could place him as one of the most successful reformers in history,” said Simon Quijano-Evans, investment strategist at Legal & General Investment Management in London.
The prime minister’s win should bode well for foreign portfolio investment in India.
Foreign investors have already started returning to the country, having bought a net $1.5 billion in equities and $887.3 million in debt in February, following four consecutive months of net sales. They have remained net buyers in March.
But expensive valuations and caution due to an anticipated rate hike by the US Federal Reserve this week could temper gains.
Indian shares are 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.
Sterling slipped on Tuesday after Britain’s parliament paved the way for Prime Minister Theresa May to launch divorce talks with the European Union, while stocks advanced ahead of an expected US interest rate later in the week.
The pound retreated almost 0.1 per cent to $1.2208 after both houses backed the so-called Brexit bill, opening the door for May to start the clock on the required two-year negotiation period by the end of this month.