As the air of political uncertainty clears with the triumph of the United Progressive Alliance (UPA), the bulls are expected to return to the bourses when markets open on Monday. Market pundits expect a huge rally for the 30-share Sensitive Index of the Bombay Stock Exchange (BSE) and the Nifty during the coming week as foreign institutional investors (FIIs) start pumping in fresh funds that have been awaiting clarity on the political front so far.
Market experts said the Left-less victory of the UPA over BJP-led National Democratic Alliance (NDA) would not only signify the formation of a stable government, but also revive hopes of a slew of pro-market policy changes that would take Indian markets to new highs in the coming days.
“Victory of UPA has given strength to the market players. Investors expect that the forthcoming policies may be pro-market and pro-business. FIIs will show a positive inflow now as there is clarity about the forthcoming government,” said Anil Ladha, Head-Capital Markets at ICICI Securities.
Though retail investors might still wait for a recovery of the overall economic condition, FIIs, which control almost 60 per cent of trades in Indian stocks, are expected to inject fresh capital. Market participants said that a surge in FII inflows would certainly help to tame the bulls over the coming few months.
“A gap-up opening is very likely on Monday. Out of the $2-billion FII inflows so far, only about $1-billion has come as India-dedicated funds and the rest has come from various stake sales by Indian corporates. But now, as a stable government is formed, a surge in India-dedicated funds can be expected from FIIs which will boost liquidity. A rally of 10 per cent on the Sensex is possible,” said Sanjay Sinha, CEO at DBS Cholamandalam Asset Management. Market-men still believe that global cues would play a crucial role for Indian equities in the long term. But, in any case, market-men are confident about a rally of about 800 points on the Sensex during the first three days of the week. Similarly, the 50-share Nifty is also expected to touch 4,500 points during the coming weeks from that of 3,671 points at present.
“The bull-run will be dominated by the FIIs. Domestic investors will still count on global parameters, and it should take 2-3 quarters before the overall confidence comes back among domestic investors,” added Ladha.
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“We see the formation of the Congress-led UPA government as a positive development for the economy in general, and stock markets in particular. We expect positive reforms for agri, financials, infrastructure, auto, aviation and retail, with opening up of foreign direct investment (FDI),” said Nikhil Vora, Managing Director at IDFC SSKI Securities.
But, a few market players felt a rally based on expectations of policy measures by the new government could not be sustainable in the long term. “When fundamentals and not policy measures drive markets it is stronger. We need macro-economic developments and growth in corporate earnings to sustain a rally. In the medium term, the optimism will be there in the absence of Left parties, and due to a stable government throwing up possibilities of purposeful reform measures,” added Sinha.
“Markets have gathered enough steam to have bottomed out at current levels whilst opening up a window for a 20 per cent momentum in the near term. Over the long term, fundamentals will need to deliver, whilst global markets will also be a cue-leader,” Vora added.