Monday, December 9, 2013

How markets influence by assembly election results, Rupee hits 4-month high

Today’s prices in the stock market are a reflection of tomorrow’s expectation. The surge of the BSE Sensex and Nifty to a record high on Monday means that stock markets expect companies to perform better than in the past on profits over the next 6-12 months. This follows the significant victory of Bharatiya Janata Party (BJP) in elections held in two states.

1.   Elections 2014 and stock markets: India heads into general elections in 2014. Ahead of those polls, assembly elections for Madhya Pradesh, Rajasthan, Chattisgarh and Delhi, which account for 73 seats in Lok Sabha, reflect a position of strength for BJP. The stock market perceives BJP to be investment friendly. “The trends emerging from these state election results would improve the prospects of BJP to attract strong regional parties to ally in states where BJP has a very remote to nil presence,” said Motilal Oswal Securities said on election results on Monday.

2.  Uncertainty: Many analysts from foreign brokerages like Credit Lyonnais Securities expect India to have a stable government led by BJP with consistency in policy. The stock market wants a stable BJP or Congress led coalition. However, pundits who track politics closely find the election in 2014 too difficult to call. Stock markets do not like uncertainty. In such a situation, if state elections are able to throw a decisive winner, it helps boost hope of a stable government. In this situation, after BJP’s win in the state polls, the uncertainty diminishes.  “Three logical outcomes of the 2014 national elections—NDA, UPA or a combination of regional parties—remain open,” said Kotak Securities in a note on Monday. “Economic reforms will likely continue in the case of the first two outcomes while the third outcome would have inherent contradictions based on ideological differences and precedents,” the note adds.

The rupee and bonds rallied on Monday after the country's main opposition party, BJP, which is widely seen by investors as being more business friendly, performed well in state elections.

BJP was the clear winner in three big states that went to the polls according to results on Sunday, with the count close in a fourth.

The partially convertible rupee was trading at 61.04/05 per dollar at 0913 IST (0343 GMT), after hitting as high as 60.84 to the dollar at the open, its strongest level since August 12. It had closed Friday at 61.41/42.

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