India Assets to Cheer Exit Polls Predicting Second Term for Modi

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India’s stocks, rupee and bonds will likely gain Monday as exit polls showed Prime Minister Narendra Modi’s party is set to retain power.

Most exit polls predicted a majority for the Bharatiya Janata Party and its allies as the nation’s six-week-long general election ended Sunday. Votes will be counted Thursday.

The forecasts come when the optimistic tone for the nation’s assets has waned as the trade standoff combined with concern about Modi’s ability to repeat his landslide 2014 win amid a resurgent opposition, farm distress and a job crisis. Investors had been concerned that an outcome that defies the market’s base case view — the BJP-led alliance winning with a slim majority — could lead to an adverse reaction.

“Exit poll results will put to rest any concerns about the present government not coming back,” said Paresh Nayar, Mumbai-based head of currency and money markets at FirstRand Ltd. “Financial markets are going to cheer this exit poll results.”

The rupee, Asia’s top performer in March, slid 0.5% last week as escalating trade tensions roiled global markets. The yield on benchmark 2029 bonds fell five basis points to 7.36 percent, while the S&P BSE Sensex gauge of stocks recovered from a nine-session losing streak to cap the best week since March.

Still, sentiment remains fragile as overseas investors have pulled more than $650 million combined from local shares and bonds this month. Also, Indian exit polls have often gotten things wrong: they wrongly estimated the BJP would win reelection in 2004 and significantly underestimated the scale of the main opposition Congress-led coalition victory in 2009.

Strategic Views

FirstRand (Paresh Nayar, head of currency and money markets)

  • Equities will be the leading market guiding the positive sentiment and we will see positive moves in the rupee and bonds as well.
  • We could see 25-30 paise appreciation in the rupee tomorrow

Bank of America Merrill Lynch (Jayesh Mehta, country treasurer)

  • Even though these are exit polls and we still need to wait until the actual results, this outcome will be taken positively by markets
  • A government led by the BJP will ensure continuity in economic policy and investors like that

RBL Bank Ltd. (Rajni Thakur, an economist)

  • The currency may gain as much as 60 paise Monday if the RBI doesn’t intervene to check the appreciation, and the rupee will immediately move to levels of 68/USD in next two-three days if this trend continues
  • Equity markets will see momentum building up over the next two months if actual election results are in line with what exit polls show
  • Tough questions and concerns on fiscal deficit, credit markets and other issues will start coming up toward July, and that is when the mettle is going to be tested

TCG Advisory Pvt. (Chakri Lokapriya, chief investment officer)

  • A Modi win will ensure that the economic reforms process that started with the goods and services tax and the bankruptcy code will continue. This will ensure economic recovery and growth
  • We will advise investors to jump in as it is uptick time and Modi again.

Motilal Oswal Financial Services Ltd. (Motilal Oswal, Chairman)

  • The exit poll results are better than the expectations.
  • Stock markets will move up by 2-3% in next few days. I am quite optimistic at these levels. Investors should increase equity allocations.

— With assistance by Anto Antony

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