Even before the final phase of polling concluded on Monday (May 12), the equity market had given its verdict. It had decided that the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) would form the next government. Continuing its Friday's fantastic run, the BSE Sensex for the second consecutive session moved higher to touch a new all-time high of 23,572.88.
It closed at its all-time high of 23,551, up 2.42 per cent or 557 points. Stock prices rose across the board rose in the market. Barring the health-care index, all others closed higher. The major gainers of the day were oil and gas and the auto sector which gained around three per cent each.
"It's a given that the next government will be formed by NDA led by Narendra Modi as the prime minister," says Avinnash Gorakssakar, Head Research at Miint Direct, a Mumbai-based financial services firm.
"In fact, the optimism that they will form the next government without any external support has buoyed sentiment which was the reason for the meteoric rise in the market." In the last two sessions (Friday and Monday), the BSE Sensex has gained over 1,200 points or 5.4 per cent.Currently, the market is expecting the NDA to get around 270 seats. If it gets over 300 seats, the feeling is that the Sensex will cross 27,000. Similarly 250 seats for the NDA will see Sensex fall to around 22,000. However, no one expects the NDA to get below 230 seats. Any disappointment on the lower side will see a sharp correction from the current levels.
Meanwhile some cue to the outcome of the general election will emerge in the exit polls, which will be relayed after the final phase of polling, that is, post 6:30 pm on Monday. The market was always expecting the BJP-led NDA to form the government, but now the expectation is that BJP with its pre-poll allies will get a majority on its own and will not have to depend on outside support. Any disappointment on that will trigger a sell-off in the market.
Historically in the last 18 years, the Congress and the BJP combined have never won more than 325 seats. In the same period, the highest number of seats the Congress has won has been 206 seats in 2009, while the BJP's best performance was 182 seats in 1998.
Meanwhile investors in the Indian equity market should exercise caution. It's a matter of another week. Thereafter, we will get a clear outcome of the general election. It's better to stay on fence and once a clear picture emerges it would be advised to enter the market.
Buying slightly costlier when things get clearly is always better than taking a punt in rough weather. In the next four days the Indian equity market will continue to swing depending on the results of the exit polls. The focus will be: Will the NDA form the government at the Centre?