Marking

Modi to market

Narendra Modi, the BJP’s prime ministerial candidate for the next general election. Photo: Amit Dave/Reuters

The equity markets welcomed the exit polls predicting a likely victory for the Bharatiya Janata Party (BJP) in four states, or at least three out of four states, with a 1.2% rise in the S&P BSE Sensex. While the markets opened in a euphoric mood on Thursday morning, it gradually gave up some of the gains through the day.

The Nifty ended 1% lower compared to its highs in the first few minutes of trading. What’s more, as one technical analyst points out, the outstanding positions on the country’s top-traded Nifty contracts rose by about 6% on Thursday which, on the back of the downward price pressure through the day, indicates that fresh short positions were created. Of course, there may have been some profit booking, too.

There’s little doubt that the markets would welcome a Narendra Modi-led government and foreign institutional investors such as CLSA and Goldman Sachs have made no bones about this. But the market also realizes that while a favourable result in the state elections could boost BJP’s chances in the national elections, there’s still a long and rocky road ahead. Bank of America Merrill Lynch, for instance, points out that in 2003 BJP won three of these four states (nobody seems to be interested in Mizoram), but lost the 2004 elections. Nevertheless, as the chart shows, markets usually do well in the run-up to the elections, a likely outcome this time given the gloom and doom all around.

On Thursday, the rally was led by the cyclicals, with the BSE Bankex gaining 4.44% and the BSE Capital Goods index up 3.59%. We consider below a few sectors that may benefit from a political change at the centre
 tanu ujjaniya
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