Nifty may surge 5-10% in short term if BJP gets majority: UBS

As the final phase of the ongoing seven-phase general election will end on May 19, exit poll results will be announced by psephologists and media outlets. This may lead to volatility during the week starting May 20.

Big swings can be seen on May 23 when election results will be announced. The Nifty could touch 11,800 levels and go beyond in case of a market-friendly outcome or slip 10-15 percent in case NDA fails to get a majority, suggest a report from a global investment bank.

In the short term, the market movement will be dictated by the trend on May 23, UBS said in a report.

UBS said in case of BJP getting a majority, Nifty could move up by 5-10 percent, topping the recent peak of 11,800.

“In the second scenario, if the BJP-led NDA wins 250+ seats, Nifty could move up by 5 percent to touch its recent peak. In the third scenario, if BJP-led NDA wins less than 250 seats, there could be near term volatility,” it said.

In case there is a non-NDA government, UBS models Nifty to correct 10-15 percent.

Nifty is trading at 20x 12m forward PE, and UBS thinks that looking beyond the immediate market moves next week, the risk-to-reward ratio is unfavourable for investors.

“The reality check of fiscal slippage and/or a negative growth surprise awaits markets post this binary event,” highlighted the report.

Foreign investors have poured in net $9.8 billion YTD, and investor discussions that UBS had in the past suggest markets are factoring in a BJP-led NDA win.

India has performed largely in line with EMs over the past year but outperformed by 5 percent after the recent India-Pakistan tussle. Earnings trajectory has lagged the EMs materially though, which could be a concern.

The broader markets and midcaps have continued to struggle. As many as 10 stocks drove 75 percent of Nifty's return since lows of February 19. “These suggest there remains some anxiety around the election outcome as well as possibly fundamentals,” the report said.