BJP-led NDA Sweeps General Election, Indian Stockmarket Flies High on Modi Wave BSE's Sensex gained 1000 points and crossed the 40,000 mark for the first ever while NSE's Nifty surpassed the 12000 marks. On accounting of profit booking, Sensex slipped by 298.82 points at 38,811 and Nifty by 80 points or at 11,657.05, at the closing bell

If Game of Thrones finale didn't excite you, Indian politics would surely do – at least, it did thrill the domestic stock markets this week and especially today.

According to exit polls, NDA, which is led by BJP, was likely to sweep the general election and markets rallied under the impression that Narendra Modi and his colleagues are up for the second tenure.

Today, as soon as, early election results started to trend, proved that the exit polls were right, the euphoria continued as benchmark indices breached their historic marks.

BSE's Sensex gained 1000 points and crossed the 40,000 mark for the first ever while NSE's Nifty surpassed the 12000 marks. On accounting of profit booking, Sensex slipped by 298.82 points at 38,811 and Nifty by 80 points or at 11,657.05, at the closing bell.

Experts say as the incumbent government is looking to take the office in the second term with a clean sweep, investor sentiment has turned highly positive and this has helped the indices to cross its record high.

"The final outcome of General Election-2019 came in with an overwhelming verdict in favour of the ruling party. While there was little doubt about the verdict, the landslide victory margin is an endorsement of the faith the populace had in the ruling government," K. Gurumurthy, Head Treasury, Lakshmi Vilas Bank noted.

Presently, NDA has won a clear majority of 354 seats, followed by UPA, which is led by Congress, is struggling with 90 seats. On the other side, others with 98 seats.

How Surreal is Modi Wave?

So, are you wondering why investors love PM Modi? Let's decode this together.

On asking why traders have reposed their faith on Modi and BJP Supremo Amit Shah, Mayuresh Joshi, Portfolio Manager, Angel Broking Ltd says, "For one, they both represent a combination of a vision for the future and a strong organization muscle. Like in business, even in politics, this combination can be quite intimidating. Also, while there has been distress on jobs, millions at the bottom of the pyramid have also benefited from the social welfare schemes. That, perhaps proves, why anti-incumbency did not work against the BJP."

Even Umesh Mehta, Head of Research, SAMCO Securities thoughts are more or less similar to Joshi as he says the policies and regulations implemented by the Modi Government in the past term have brought about some iconic changes which have made a difference.

"Demonetization, GST, IBC are a few examples of the work done by Modi which will help our economy in the long-term. To add to it, he is trying to mend fences with other international leaders in order to improve relations with other nations. This has helped India gain a recognizable position on the world map. The loyalty and love towards Modi is just a reflection of his hard work and efforts," he noted.

The sweep has also improved foreign investors' sentiment and helped them repost their faith in India's growth story.

"This could lead to Rupee strengthening and benchmark yields coming down over the short term. Specific to the Indian stock market; we believe they might have run up ahead of fundamentals buoyed by sentiment over the short term," Nikhil Kamath from Zerodha shared.

Reality Check

Indian market might be riding bullish on the Modi-wave i.e a euphoria which was created by exit polls followed by the historic win. However, as the reality started to sink in, investors are likely to keep a close watch on how key economic issues are addressed.

Abhimanyu Sofat, Head of Research, IIFL Securities believes that "though the current index level already captures this outcome, any further trend in creating a more stable government will be considered positive by the market. However, once the new government gets sworn in the focus needs to shift to arrest the recent slowdown in consumption and improve investment climate so that the GDP growth rate is sustained above 7.5 per cent".

One also cannot ignore the fact India's economic growth is dampened which is led by a slowdown in consumption, liquidity crisis in the NBFC sector and issues in the agriculture sector. With limited fiscal space amid compelling priorities and electoral promises, Garima Kapoor, Economist, Elara Capital feels that Modi government's second term in office is likely to be more challenging than the first.

She says, "Unlike the first five years, the solution to the problems is complex and requires a radical shift in the economic policy. If the first five years of the government were dominated by housing, roads and toilets, the next five would have to be dominated by investment, jobs and nursing of the dislocated financial sector. Among immediate priorities, we expect the Modi led government to take measures to revive consumption, address financial sector dislocation by recapitalizing PSU banks, boost manufacturing sector to ensure job creation and solve the conundrum of skill shortage in the country to ensure employability."

Additionally, the NDA government has also created a good platform for rural schemes in the last five years, Kapoor suggests the government in its second tenure to focus on reviving terms of trade in agriculture and strengthen e-NAM, enhance micro-irrigation facilities, increase credit to agriculture and boost farm prices through effective implementation of schemes such as PM-AASHA.