Dalal Street not too worried about Bihar

Market participants aren’t pinning much hope on a Bharatiya Janata Party (BJP) victory in the Bihar elections. Key benchmark indices may drop 3-5% if the BJP and its allies lose in Bihar as the election defeat could limit the ability of the central government to push through pro-business measures such as the Goods and Services Tax (GST) and Land Bill, according to an ET poll of leading market participants.

Nevertheless, by the year end, the stock market could end higher from the current levels as the majority of poll participants do not expect the US Federal Reserve to start raising interest rates in December. Infosys, Maruti Suzuki, Reliance Industries, Britannia Industries and UltraTech Cement emerged as their top stock picks for the next three to six months.

ET spoke to 32 leading fund managers, equity strategists and stock brokers for the poll.




By December 31, key indices could gain 8-11%, according to 42% of the poll participants. Another 33% said the market gauges may advance 4-5% by the year end. On Friday, the Nifty closed at 8,066 and the Sensex ended at 26,656.

According to 42% of the participants, the Mahagathbandhan — the alliance of parties such as Janata Dal (U), RJD and Congress — may edge past the BJP-led National Democratic Alliance (NDA) in Bihar polls. On the other hand, 33% of those polled feel the NDA has a chance, while 25% are predicting a hung assembly — where no party has a majority.

The Bihar elections are crucial for the stock market in the nearterm because several traders have built sizeable positions on the indices and stocks, betting on the event. Long-term portfolio investors including foreigners, who poured Rs 97,000 crore into Indian stocks in 2014 and about Rs 31,700 crore so far in 2015, may perceive the outcome as an indicator of the Modi government’s popularity.

“If the NDA wins with a large majority, it will be seen as a large positive and an endorsement of the government’s policies. Even if it wins by a small majority, the market will take the results positively,” said Sanjeev Prasad, senior ED & co-head — strategy, Kotak Institutional Equities.

A defeat for NDA will be a negative for the market and will raise questions about the legislative abilities of the government, which are already under a cloud, said Prasad.

After the first three phases of the Bihar polls, the JD (U)-RJDCongress combine is perceived to be leading the race. The focus now is on the fourth phase, in which the NDA is expected to make a comeback, while the fifth and final phases could be a damp squib for the alliance. Brokers said the market is realising that NDA’s performance in Bihar elections could be disappointing.

“The market has discounted the fact that the NDA has done poorly in the first few rounds of Bihar elections,” said Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services. “So, if NDA surprises, the market would react positively, but if it loses, I don’t expect the market to plunge.”

Mahesh Patil, co-chief investment officer at Birla SunLife Mutual Fund, said, “Even if the Bihar election results are not in favour of the NDA, the markets will only see a minor correction, which should not worry investors.”

Investors’ confidence that the market would recover soon from any disappointment in Bihar stems from the expectations that the US Fed may not raise rates in 2015 even as the American central bank last week hinted at the possibility of tightening monetary policy in December. Around 62% of the poll participants said they did not expect the Fed to raise rates in December.