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Sensex hits new record on BJP win; rupee at 4-month high
The BJP is perceived by many investors as being more business-friendly, and it's good showing in assembly elections raised optimism about its chances ahead of general elections due by May next year.
"The BJP is considered more right-of-center, pro-business and reform-oriented," Nomura said in a note to clients.
"The fact that runaway spending by the ruling party has not won any votes could be taken as a very positive signal by the markets in terms of voter preference for the kind of policy favoured by the electorate."
The Sensex bettered its previous record high of 21,321.53 hit on November 3, 2013, while the Nifty surged past its previous all-time high of 6,357 hit in January, 2008. The rupee hit nearly 4-month high of 60.84 against Friday's close of 61.41.
The BJP cruised to landslide wins in Madhya Pradesh and Rajasthan, won a majority in Chhattisgarh and emerged as the single largest party in Delhi.
Market analyst Sarvendra Srivastava told NDTV that a game changing session is on the cards and a breakout has happened in the expected direction.
Madhav Dhar, managing partner of GTI Capital told NDTV that this verdict is more of a vote against the ruling Congress Party. The results are an affirmation that we had unsustainable policies and a lot of cynics about India will pause and say wow things will change, he said.
"The economy will be on a 7 per cent growth trajectory, inflation will be below 7 per cent and corporate profits will rise. Markets will be substantially higher that what it is today," Mr Dhar added.
However, foreign brokerages were a little subdued in their outlook. Macquarie said the positives from state elections are somewhat factored in the markets.
Analysts also warned that a BJP victory next year is far from guaranteed and the market rally could be capped by worries about an economy expected to grow below even the decade low of 5 per cent hit in the previous fiscal year.
The Federal Reserve could also move soon to end its massive stimulus after signs of an improving US economy. Only a few months ago India was badly roiled by fears of an early end to the Fed tapering, ushering the worst market crisis since the balance of payments turmoil two decades ago.
Although India is seen as being in a stronger position after its current account deficit has narrowed to a more than four-year low, the prospect of foreign selling is a concern.
Foreign investors have bought Rs. 1 trillion so far this year in shares, making these capital flows vital for India's current account balance.
Furthermore, high inflation has forced the Reserve Bank of India to raise interest rates by half a percentage point over the previous two months. A continued spike in consumer prices in data due out on Friday could bolster views the central bank will again tighten monetary policy again this month.
"There should not be such excitement around new high. It is not understandable in context of growth and valuations." Sanjeev Prasad, executive director and co-head of Kotak Institutional Equities in Singapore.
As of 12.45 p.m., the Sensex traded up 315 points at 21,312, while the Nifty traded 97 points higher at 6,357.
On the Nifty, 41 of the 50 shares traded in the green, but banking and industrial stocks were the biggest gainers. The Bank Nifty rose as much as 4.3 per cent. ICICI Bank was among the top Nifty gainers, up 4.8 per cent. Engineering and construction major L&T traded with 4.65 per cent gains.
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