The predictions of an NDA win in the ongoing Lok Sabha elections by opinion polls have already been partly factored in by Indian equity markets, and if the same is proven correct, more market upside is likely on the cards, according to reputed international brokerage, CLSA Ltd, reports The Economic Times.
The firm expects a minor rally in the markets if the BJP-led coalition clinches the elections, and a bigger rally in case they received a greater than expected mandate. CSLA also believes an initial sell-off may be triggered by the Congress returning to power.
The worst can scenario would be if a third front government or unstable coalition emerges the winner; it could possibly cause a double-digit decrease in the indices.
“Optimism from foreign and the domestic investors have pushed up the Nifty multiples to now 6 per cent above 1sd (standard deviation) levels. This shows that the current opinion polls are factored in to some extent,” said CLSA.
The brokerage believes that the trend of foreign inflows into Indian markets is currently primarily passive, driven by a general pro-emerging markets sentiment, but a more proactive stance may be taken by international investors if the results see an NDA victory.
“An active allocation change in favour of India is yet to happen in any meaningful way and if the actual election results give out a strong government, some more market upside is likely,” said the brokerage.
In total, foreign portfolio investors put in around Rs Rs 42,600 crore in Indian equities last month (March); the funds pumped in till now for April stand at Rs 5,800 crore.
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