Brokerage Religare Capital has attributed Indian markets hitting an all-time high to Narendra Modi being seen as the forerunner for the post of Prime Minister and has said they could see a “major correction” if the national alliance that his Bharatiya Janata Party leads does not make the numbers to form the next government.
The BSE Sensex on Monday touched a record high of 22,853, while the broader Nifty hit an all-time high of 6,838.
“There’s obviously a very large hope trade running on the NDA potentially coming into power and the fact the economic situation could significantly change if that would happen. Again this is a hope and expectation on which the market has run up and clearly you have seen a complete U-turn from FIIs (foreign institutional investors),” Gautam Trivedi, managing director and head of Equities, Religare Capital said.
He also said that a hung Parliament would have a “bigger impact” on the market than Mr. Modi not becoming Prime Minister. A hung Parliament occurs when no party manages to win an outright majority.
The markets, despite its surge are awaiting a clearer economic vision from Narendra Modi, Mr. Trivedi said.
“People just don’t know what is going to come next in terms of reform; there is a lot of speculation. Of course we have seen Mr. Modi repeatedly on TV in the past few weeks giving some insight as to what he might actually do. But I think nobody’s seen the blueprint as yet so would like to see that and take a further call on the markets,” he said.
Mr. Trivedi pointed out that foreign inflows which were in the negative even till January end have accelerated “dramatically” since then. “I think that’s really what is causing the rally to continue in spite of the fact the domestic investors, mutual funds and insurance companies continue to remain net sellers,” he said.
While domestic investors have since January sold equities in excess of $3 billion, foreign net buying has been worth $4.7 billion- which have carried the market to its current levels, Mr. Trivedi said.
Foreign investors, however, are not expecting “miracles” in the first year of a prospective NDA government, he said.
“What they (foreign investors) are expecting is FY16 which is going to look significantly better and FY16 that would potentially be at 6.2 or 6.5 per cent GDP growth.” he said. The country’s economy grew at a decade low 5 per cent last year and is expected to not have fared any better this year.