Nifty scales record high at 9,122; 5 factors driving market despite looming Fed worry
NEW DELHI: The BJP's strong show in the state elections has had a rub-off effect on the Dalal Street, with the Nifty50 hitting a record high of 9,122.75, breaking its March 2015 record of 9,119, and the Sensex rallying over 600 points in morning trade. That, even when a rate hike by the UD Federal Reserve loomed over Dalal Street like a the Damocles’ sword .
Going by the buzz on Dalal Street, here are the five big factors that have triggered Tuesday’s strong rally on Dalal Street.
BJP victory: In Uttar Pradesh, the BJP won 312 seats, including some of the Muslim-dominated seats such as Chandpur, Moradabad Nagar, Deoband Naanpara, Nakur and Noorpur. Analysts believe the UP win has set Prime Minister Modi up for a mega victory in the 2019 general elections.
"For the first time, it is pretty clear that the market is supporting bold and hard decision-making, which may be good for the country over the medium to long term. The policy paralysis that we witnessed earlier, wherein one would look at one constituency and what will happen to that, I think that has been mashed," said Prateek Agarwal, Business Head & CIO, ASK Investment.
Valuations: Analysts Madhav Dhar, Managing Partner at GTI Capital Group, said while valuations are not extremely stretched, they are not cheap either. That said, one cannot ignore attractive long-term buying opportunities, he said.
“You want to be structurally long on India, every time there is some kind of flutter or panic and a reassessment. You should have the courage to step up. There was a panic when the rupee fell to 69. There was panic when the first Budget of the Modi administration disappointed. Demonetisation came out of the clear blue sky and everybody started second guessing what the heck is going on. You may want to take a little bit off the table. But the important thing is to not miss the buying opportunities,” Dhar said.
Indian equities are trading at 17 times FY18 projected earnings, which is one standard deviation away from the 10-year average.
DeMon to haunt no more: Experts believe talks over cash ban will now end. Known economist Lord Meghnad Desai noted that demonetisation was a biggest risk Narendra Modi took and while the public complaint a little bit, it was happy to go through the cost of reform. "It is the political parties who really exaggerated the problem. They overstated what damage it was doing to the economy. They stop the winter session a parliament. Now what has now been shown is that by and large the public welcomed demonetisation. Its effect on growth has been very mild as I have predicted and so that will encourage Narendra Modi to go on and do more reform," Desai said.
Election win to boost foreign investor sentiment: Tirthankar Patnaik, India Strategist at Mizuho Bank, said the outcome is sort of a carte blanche for the Modi government. "There is no more questioning on the demonetisation exercise, the government's decision making at least. The longer term impact of demonetisation may be left for us economists to ponder when the data comes. But in terms of what the market says, what the populace of the country thinks of demonetisation, we need no more persuasion. That should act as a big shot in the arm for the government and for the market in terms of reforms -- the 30-odd seats that the BJP would get in the Rajya Sabha would certainly enthuse a lot of us foreign investors, foreign banks where people look at the minority in the Upper House as a road block for the government," Patnaik said.
Patnaik said that India looks at labour reforms, which are not really on the federal list. "Nothing needs to said on GST. Clearly the support that the BJP has got now would make a lot more states fall in line," he said.
GST/earnings recovery: There have been hopes that the stronger BJP would push for timely implementation of GST. This will help the economy recover swiftly. Earnings too may see a rebound in next couple of quarters, they said. “The BJP's emphatic victory in the politically-crucial state of UP would embolden the Prime Minister in aggressively expediting key structural economic reforms that have been hobbling India's growth impulses. Mr Modi has achieved a golden mean by emphasising on economic reforms with equity-for-all as it's fulcrum,” said Ajay Bodke, CEO & Chief Portfolio Manager -PMS, Prabhudas Lilladher.
“Though valuations remain expensive markets would pin it's hope on recovery of as-yet tepid corporate earnings over the next few quarters and the passage of GST," Bodke said.
Going by the buzz on Dalal Street, here are the five big factors that have triggered Tuesday’s strong rally on Dalal Street.
BJP victory: In Uttar Pradesh, the BJP won 312 seats, including some of the Muslim-dominated seats such as Chandpur, Moradabad Nagar, Deoband Naanpara, Nakur and Noorpur. Analysts believe the UP win has set Prime Minister Modi up for a mega victory in the 2019 general elections.
"For the first time, it is pretty clear that the market is supporting bold and hard decision-making, which may be good for the country over the medium to long term. The policy paralysis that we witnessed earlier, wherein one would look at one constituency and what will happen to that, I think that has been mashed," said Prateek Agarwal, Business Head & CIO, ASK Investment.
Valuations: Analysts Madhav Dhar, Managing Partner at GTI Capital Group, said while valuations are not extremely stretched, they are not cheap either. That said, one cannot ignore attractive long-term buying opportunities, he said.
“You want to be structurally long on India, every time there is some kind of flutter or panic and a reassessment. You should have the courage to step up. There was a panic when the rupee fell to 69. There was panic when the first Budget of the Modi administration disappointed. Demonetisation came out of the clear blue sky and everybody started second guessing what the heck is going on. You may want to take a little bit off the table. But the important thing is to not miss the buying opportunities,” Dhar said.
Indian equities are trading at 17 times FY18 projected earnings, which is one standard deviation away from the 10-year average.
DeMon to haunt no more: Experts believe talks over cash ban will now end. Known economist Lord Meghnad Desai noted that demonetisation was a biggest risk Narendra Modi took and while the public complaint a little bit, it was happy to go through the cost of reform. "It is the political parties who really exaggerated the problem. They overstated what damage it was doing to the economy. They stop the winter session a parliament. Now what has now been shown is that by and large the public welcomed demonetisation. Its effect on growth has been very mild as I have predicted and so that will encourage Narendra Modi to go on and do more reform," Desai said.
Election win to boost foreign investor sentiment: Tirthankar Patnaik, India Strategist at Mizuho Bank, said the outcome is sort of a carte blanche for the Modi government. "There is no more questioning on the demonetisation exercise, the government's decision making at least. The longer term impact of demonetisation may be left for us economists to ponder when the data comes. But in terms of what the market says, what the populace of the country thinks of demonetisation, we need no more persuasion. That should act as a big shot in the arm for the government and for the market in terms of reforms -- the 30-odd seats that the BJP would get in the Rajya Sabha would certainly enthuse a lot of us foreign investors, foreign banks where people look at the minority in the Upper House as a road block for the government," Patnaik said.
Patnaik said that India looks at labour reforms, which are not really on the federal list. "Nothing needs to said on GST. Clearly the support that the BJP has got now would make a lot more states fall in line," he said.
GST/earnings recovery: There have been hopes that the stronger BJP would push for timely implementation of GST. This will help the economy recover swiftly. Earnings too may see a rebound in next couple of quarters, they said. “The BJP's emphatic victory in the politically-crucial state of UP would embolden the Prime Minister in aggressively expediting key structural economic reforms that have been hobbling India's growth impulses. Mr Modi has achieved a golden mean by emphasising on economic reforms with equity-for-all as it's fulcrum,” said Ajay Bodke, CEO & Chief Portfolio Manager -PMS, Prabhudas Lilladher.
“Though valuations remain expensive markets would pin it's hope on recovery of as-yet tepid corporate earnings over the next few quarters and the passage of GST," Bodke said.
