Indian stocks reach all-time highs ahead of election results

Indian shares surged to historic highs, the rupee strengthened, and bond yields fell on Monday as exit polls indicated a sweeping victory for prime minister Narendra Modi's party in the elections.

The Nifty index jumped 3.59 per cent to a new record of 23,338.70 points, while the BSE index reached an all-time high of 76,738.89, reflecting investor optimism regarding the continuity of Modi's leadership and potential government spending measures.

The benchmark 10-year government bond yield dropped to 6.9421 per cent, its lowest level since April 8, 2022, while the rupee climbed to 65.42 against the pound sterling, marking its highest value since March 19.

Exit polls suggested a strong mandate for Modi's Bharatiya Janata Party (BJP), with projections indicating a potential two-thirds majority in the lower house of parliament. Analysts anticipate that a decisive victory for the BJP could sustain market momentum and facilitate further economic reforms.

"Last month, I kept saying 'buy the dip'; this month's slogan is going to be 'ride the wave'," said Vikram Kasat, Head of Advisory at brokerage Prabhudas Lilladher.

Foreign investors, who had adopted a cautious stance ahead of the elections, may now consider re-entering the Indian market. "People will continue to clamour for a correction, but I believe every dip will be bought into. The month of June could be a defining one for the bulls, so one should make the most of this opportunity and stay a bit greedy," added Kasat.

Despite concerns about overvaluation in certain sectors, the overall sentiment remains positive, buoyed by India's robust economic growth and expectations of continued government focus on infrastructure development and manufacturing.

"A large BJP victory may sustain rich-to-bubble multiples in parts of the market (automobiles, capital goods, public-sector units) for longer, but we would be surprised if many of the lofty embedded expectations come to fruition," wrote analysts at Kotak Institutional Securities.

India's economic growth accelerated to 8.2 per cent in the financial year to March 2024, propelled by government spending on infrastructure and a surge in real estate activity. If a Modi victory materialises as strongly as indicated by the exit polls, analysts believe he would have the political capital to push for tougher land and labour reforms.

"Given the structure of Indian markets, we observe a strong correlation between GDP growth and EPS growth. High quality, high visibility earnings may fuel Indian equities higher in the months ahead," noted Carlos Casanova, senior economist at Union Bancaire Privée.

Investors expect the Modi government to continue its efforts to transform India into a manufacturing hub, a strategy that has attracted foreign companies such as Apple and Tesla to establish production facilities in the country.

"We can expect the sharp rally in the market to sustain, particularly in large-cap stocks, as foreign investors are likely to resume buying Indian equities after a period of continuous selling," said Sunil Nyati, managing director of Swastika Investmart, if the BJP's victory is as comfortable as projected.

(Reuters)