Mumbai, Dec. 8: The euphoria that gripped the BJP headquarters on Delhi’s Ashoka Road on Sunday after the party’s resounding win in the Assembly elections in four states is expected to spread through Mumbai’s Dalal Street tomorrow.
The Sensex could leap to an all-time high tomorrow as the markets and pundits start to read the poll results as a very important pointer to the outcome of the general elections next year.
The Sensex — the market’s bellwether index — will need to climb a little over 1.5 per cent from Friday’s close of 20996.53 to scale the all-time high of 21321.53 that the index touched on November 3.
“The market will open with a gap-up and the BSE Sensex could hit an all-time high,” said Kishor P. Ostwal, chairman and managing director at CMI Research.
Ostwal expects the 30-share benchmark index to breach the 22000 mark in the coming days, adding that the poll results and the ensuing rally can bring the retail investors back into the market. He also believes that the market fervour can ignite gains in the mid-cap and small-cap counters.
A major highlight of the rally so far has been the fact that it has been limited to only a few large-cap stocks and sectors. Incidentally, Ostwal believes that the Sensex can touch the 24000 mark before the general elections, powered by the market’s anticipation that Narendra Modi will become India’s next Prime Minister.
Not everyone, however, is as gung-ho as Ostwal.
A few market mavens advocate caution while entering the markets now. They reckon that the election results have already been discounted in the market and stocks could remain range-bound over the next few days.
They believe that while the all-time peak can easily be surmounted on Monday, there is a big question on whether the index will stay at those stratospheric levels.
Key data points
There are some key data points coming out next week that could have a sobering effect on the market. The first is the industrial production data for October and the other is the consumer price index number for November. Both data points will come out on Thursday — and will figure prominently in the deliberations of the Reserve Bank of India’s policymakers when they make a mid-quarter review of the monetary policy on December 18.
Industrial output grew 2 per cent year-on-year in September, sharply higher from the revised figure of 0.4 per cent in August, but way below the market’s consensus estimate of 3.5 per cent. Moreover, the cumulative growth in industrial output in the first six months of this fiscal (April-September) is still very low at 0.4 per cent.
CPI in October rose to 10.09 per cent from 9.84 per cent in the previous month — spreading some alarm through the Reserve Bank of India, which has started to look closely at this number, rather than the one generated by the wholesale price index, as it formulates its monetary policy response to a problem that has bedevilled kitchen budgets. Inflation — especially retail inflation — has certainly weighed heavily on the minds of the voters in the recent elections.
FIIs to call the shots
“The stock markets were rooting for a BJP win and tomorrow they will celebrate the results,” says Arun Kejriwal, director, KRIS. Kejriwal does not rule out the possibility of the benchmark index breaching its previous all-time high. But he believes that the course of the market over the next few months will be determined by the foreign institutional investors (FIIs). The key drivers will be the RBI policy review and any indication of tapering by the US Federal Reserve on the back of better-than-expected third quarter growth at 3.6 per cent in that country.
The market has been hugely optimistic that Narendra Modi will become the next PM and will end the policy-making paralysis that gripped the UPA government since April 2010 that was brought on by a series of damaging reports on corruption.
Even foreign brokerages such as Goldman Sachs have got into the act and have started speaking glowingly of such a prospect.
But there are some who caution against making ill-advised investments based on the Modi factor alone. Phani Sekhar, fund manager-PMS at Angel Broking, concedes that there is an anti-Congress mood in the country but doesn’t believe that it will help the BJP and its allies reap a harvest of votes in the general elections.
“The markets will then have to consider the fact that the BJP is not present in many of the states and that an anti-Congress sentiment could strengthen the regional parties,” he said. If that transpires, stocks are not likely to soar.