Bulls continue party on Day 2, scale new peak

Mumbai: Benchmark stock indices soared 1.6 per cent to record closing levels on Friday as the Bharatiya Janata Party’s landslide victory in the national elections strengthened investors’ confidence in the government’s ability to tackle the economic slowdown.

Foreign investors stepped up purchases of Indian stocks, pumping Rs 2,000 crore into domestic equities on Friday after inflows of Rs 1,400 crore the previous day.

The Sensex climbed 623.33 points to close at 39,434.72 while the Nifty jumped 187.05 points to end the day at 11,844.10, logging a gain of almost 4 per cent this week. This was the highest gain since the week ended November 2, 2018, when the benchmark indices had risen about 5 per cent.


Volatility index India VIX — which measures market perception of risk in the near term — slumped 42 per cent during the week as election outcome alleviated market worries of a weaker coalition coming to power.

Focus on policy measures

"There is a lot of positive sentiment towards India after the election results - and given the US-China trade war concerns, India looks relatively more attractive," said Pratik Gupta, MD, Deutsche Equities India.

The Nifty had touched a lifetime high of 12,041.15 and Sensex scaled an all-time peak of 40,124.96 on Thursday when the NDA’s lead in the polls pushed the market up by as much as 2.6 per cent during the day. However, initial euphoria gave away to profit booking and the markets ended lower.

ICICI Bank, Larsen & Toubro, Bharti Airtel, Vedanta and Tata Motors were the top gainers on the Sensex, up 4-5 per cent on Friday. Only five of the 50 Nifty stocks ended in the red.

The market will now focus on the policy measures that the government undertakes to revive the slowing economic growth, and in particular the consumption sector that is witnessing a slowdown. Measures to resolve the crisis in the NBFC sector will be closely watched.

“The new government's economic policies and reforms to tackle the economic slowdown as well as the NBFC sector’s issues will be watched closely ...risk of corporate earnings downgrades is priced in to some extent but the upside risk of big bold reforms over the next few months has not been priced in,” said Gupta.

In the near term, the focus will be on the global front where the US-China trade tensions continue to weigh on sentiment. “I see more upside to the market than downside but I am wary of the global situation as well. If trade war happens, all markets will fall, though India may probably see a lesser fall,” said Andrew Holland, CEO-Avendus Capital Alternate Strategies.

Others in the market believe that there may be some downside now that the election event has settled, given that key benchmark indices has rallied more than 11 per cent from the February lows, partially pricing in the victory of the BJP.

“We believe the best of the election rally is behind us, and the economy will be back to re-asserting its influence on the markets — mainly negatively amid the prevailing riskoff sentiment globally,” said ING Bank NV in a note.

The bank said that the near-term economic reality remains grim.

“...with growing global headwinds from weak exports and higher oil prices, sustaining growth at or above 7 per cent will be a challenge in the current financial year. Adding to the cyclical economic woes are the structural bottlenecks of persistent twin deficits weighing on investor sentiment,” said ING Bank.