Elections 2014 & The Markets

India remains a favourite for #FIIs--------
Positive sentiment on expectations of a Modi-led NDA victory puts India ahead of other poll-bound emerging markets
Puneet Wadhwa | Mumbai March 11, 2014 Last Updated at 22:50 IST Business Standard 

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Despite the overall positive sentiment, analysts caution markets could correct in case the election outcome throws up a hung Parliament or a Third Front-led government. Even if the NDA is voted to power, the rally could take a breather, as investors wait and assess how the economic policies and reform measures in India take shape. “Only the equity market’s worst case scenario of a non-Congress, non-BJP ‘Third Front’ government can, we think, upset the Indian equities applecart,” says Manishi Raychaudhuri, managing director and Asia-Pacific strategist at BNP Paribas Securities.

Cheruvu of RBS says the chances of a Third Front government at the Centre are less than 10 per cent. If the Nifty rises to 6,700-6,800 in the pre-election rally, he expects it to correct to 6,200-6,300 in case of a negative outcome.

Dilip Bhat, joint managing director, Prabhudas Lilladher Group, says, “A decisive mandate might see the Nifty at 6,800-7,000, though it would be significantly ahead of the fundamentals. The question is can these heady levels be sustained? My sense is no. Markets will remain vulnerable to significant corrections from those levels. On the other hand, if a decisive mandate is missing, the Nifty could dip to 5,500-levels.”

Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services, says: “The chances of a Third Front government are very low. However, in case such a government comes to power, we will see a 10 per cent correction in the markets from current levels and FIIs will press the sell button on India. On the other hand, even if Narendra Modi comes to power, incremental buying by FIIs will slow, as they will wait and watch how policy decisions shape up. So, either way, the markets will see some correction for some time after the elections.”

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