It was another field day for the bulls on the equity markets on Friday. The benchmark indices jumped 1 per cent, second day in a row, as opinion polls predicting a victory for the BJP in Gujarat kept investors upbeat.
The Bombay Stock Exchange's Sensex surged 301 points or 0.9 per cent to close at 33,250.30 and the NSE Nifty50 index ended 99 points or 1 per cent higher at 10,265.65.
Strong cues in major global markets also lifted sentiments. Japan's Nikkei Stock Average rose 1.4 per cent, Hong Kong's Hang Seng index rallied 1.2 per cent and European markets were also trading higher, led by Germany's Dax, which was up 1.4 per cent.
For the week, the Sensex ended 1.3 per cent higher and the Nifty50 rose over 1.4 per cent.
Several opinion polls on Thursday suggested that the BJP would yet again win the elections in Gujarat, although its vote share was likely to decline.
The elections in his backyard are a key test for prime minister Narendra Modi and domestic as well as foreign investors are keeping a close watch.
On Friday, auto, fast moving consumer goods, pharma and private banks were among the major gainers.
Maruti Suzuki's, the top car maker in India, shares accelerated 1.8 per cent, crossing the Rs 9,000 level for the first time.
Other auto stocks were also racing ahead, with Tata Motors up 2.2 per cent, after it reported 22 per cent rise in global wholesales for November and Mahindra & Mahindra rising 0.6 per cent. Most car makers will raise prices in January, which is expected to boost their margins.
Elsewhere, private banks like ICICI Bank, Axis Bank and HDFC Bank gained around 1.5 per cent. Latest provisional data from Reserve Bank of India showed that banks' loan growth hit a three-year high in November. Bank loans rose near 10 per cent year-on-year to Rs 79.62 lakh crore, as on November 24, 2017.
Among pharma stocks, Sun Pharma rose 2.2 per cent and Cipla was up 1.9 per cent.
Even though India's equity market valuations have been on the higher side, foreign brokerages are still bullish on India, in the emerging market basket – particularly now that the effects of demonetisation and the early hiccups of GST rollout are fading and recent reforms like the bank recapitalisation plan are expected to boost growth in the medium to long term.
“India suffered from reform-related economic disruptions in 2017, but a recovery clearly seems underway... We remain overweight on India as we want to play the upcoming recovery and benefit from the impact of previous year's policy measures,” said Manishi Raychaudhuri, head of Asia (ex-Japan), equity strategy at BNP Paribas.
“India’s PSU bank recapitalisation could free up significant capital to be lent to the private sector and hasten the beginning of private sector capex. No doubt a lot needs to be done to prevent formation of non-performing assets in future, but the implication of the policies is clearly positive for financials and industries,” he added.
BNP Paribas has a December 31, 2018 Sensex target of 37,500, an upside of close to 13 per cent from current levels. However, Raychaudhuri also feels that a recovery of corporate earnings was extremely crucial and if earnings disappointments continued, the premium valuations may prove difficult to sustain.
