 "Modi 3.0? Exit polls trigger the best day for indices in three years")
The benchmark equity indices on Monday recorded their most significant single-day surge in nearly three years, on the back of exit polls forecasting that the National Democratic Alliance (NDA) would retain power at the Centre with a two-thirds majority.
The Sensex concluded the session at 76,469, marking a gain of 2,508 points, or 3.4 per cent. The Nifty 50 ascended by 733 points, or 3.3 per cent, to end the session at 23,264. Both indices reached fresh highs, with the percentage gains being the most substantial since February 1, 2021.
The broader market indices, Nifty Midcap 100 and Nifty Smallcap 100, also reached new heights, gaining 3.2 and 2.4 per cent, respectively. The combined market capitalisation of BSE-listed companies swelled by Rs 13.8 trillion — the most significant increase in two years — to Rs 426 trillion ($5.13 trillion).
The prospect of a commanding majority for the Bharatiya Janata Party (BJP)-led government, capable of pushing through market-friendly reforms, buoyed investors.
The optimism was further fuelled by a confluence of factors: Higher-than-expected gross domestic product (GDP) numbers for FY24, an upgrade of India’s outlook from “stable” to “positive” by S&P last week, short-covering by foreign portfolio investors (FPIs), and encouraging data inflation from the US.
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Following the conclusion of polling for the Lok Sabha elections on Saturday, more than a dozen exit polls projected the NDA to secure between 316 and 400 seats. “The markets were not expecting the exit polls to be as emphatic as they turned out to be and predict a massive victory for the NDA. Now that the markets are more surefooted about the outcome, we had a rally,” observed Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers.
The India Vix, a barometer of market volatility, plummeted 15 per cent to 20.9. The index had soared over 82 per cent to a two-year high of 24.6 since the commencement of the polls on April 19.
Although the equity markets had priced in the return of the ruling coalition with a comfortable majority, concerns around the voter turnout and close contests in some states had raised apprehensions regarding the election outcome and policy continuity.
“The markets fell 2 per cent last week, but today (on Monday), they were making up for that and more. Part of the gains could be due to short covering,” noted Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies.
Investors are now hopeful that overseas funds, who turned net sellers in the past two months, would revert to being buyers. The gains on Monday were attributed to the reversal of short positions by FPIs. FPIs were net buyers to the tune of Rs 6,851 crore on Monday; domestic institutions bought shares worth Rs 1,914 crore.
All the 20 sectoral indices of the BSE ended with gains, with the BSE Power (up 7.6 per cent), BSE Oil & Gas (7.4 per cent), and BSE Bankex (4.5 per cent) emerging as the prominent gainers.
The gains in banking stocks are likely to further invigorate the market rally. “The banking sector has underperformed in the recent past, and if FPIs are coming back, they are going to buy the banking sector (stocks). With India’s inclusion in a JPMorgan bond index, we could see more flows into the bond market and bond yields going down. This is good for banks because of mark-to-market gains as banks hold a lot of government bonds,” Holland explained.
All Sensex stocks gained, except for five. Reliance Industries rose 5.6 per cent and was the most significant contributor to the Sensex gains, followed by HDFC Bank, which rose 2.7 per cent.
The NDA government’s policies, like demonetisation, implementing the goods and services tax (GST), the Insolvency and Bankruptcy Code, and the corporate tax cut in September 2019, helped formalise the economy, which is seen as beneficial to listed companies.