Stocks surged on Thursday morning in India and across Asia, tracking overnight gains in US markets even as the results of the presidential elections in the US continued to trickle in with Democrat Joe Biden leading in several key states.
There is a risk that the US election result will drag on for long as President Donald Trump challenges the results in several states in court. Also, even if Biden becomes the next president, it is unlikely that the Democrats will gain a majority in the Senate and that could lead to a gridlock on proposals and the tax cuts by the Trump administration could stay on.
“A Biden win without full Senate support also means less risk of regulation and higher corporate/personal taxes. Asset market reaction over the past 24 hours confirms this view, with the US ten-year (bond) yields declining sharply, whilst US tech/structural growth stocks outperforming on prospects of less economic aid, especially in a time when virus cases continue to surge in the US (and Europe),” Chetan Seth and Jim McCafferty, research analysts at Nomura Securities, wrote in a note.
On Wednesday, the Dow Jones Industrial Average closed up 1.3 per cent and the Nasdaq gained 3.9 per cent. In Asian markets on Thursday, Japan’s Nikkei index was up 1 per cent, Hong Kong’s Hang Seng surged 2.7 per cent and the Shanghai Composite Index rose 0.9 per cent.
“US markets (and by extension Asian equities) are likely to remain volatile in the near term. However, we do not believe it materially alters our outlook for 2021, where we remain quite constructive, on economic data/earnings recovery, which we expect to continue into 2021 as virus cases are moderating even in the most affected parts of Asia (India, Philippines and Indonesia). There are positive signs that consensus earnings upgrades are taking place, as earnings are coming in ahead of expectations,” the Nomura analysts wrote.
A Biden presidency implies more predictable foreign/trade policy, which would particularly be beneficial for China equities, the analysts further added.
In the domestic market, the BSE Sensex was up 530 points or 1.3 per cent to 41,146.83 points and the NSE Nifty 50 gained 154 points or 1.3 per cent at 12,062.95 points.
The gains were driven by State Bank of India; shares of the country’s largest lender surged over 5 per cent to Rs 217.60, after it reported a 52 per cent year-on-year surge in second-quarter standalone net profit and expects credit growth to pick up to 8-9 per cent in the current financial year, from the 6 per cent it saw in the September quarter.
“We like SBI among public sector banks for its strong liability profile, high retail orientation, reasonable capital position and undemanding valuations,” said Anand Dama, analyst at Emkay Global Financial Services.
The broking firm raised earnings' estimates on SBI for the current financial year by 52 per cent and for the next year by 18 per cent, factoring in “slightly higher growth momentum, improving fees and expected lower stress formation than earlier”.
The strong results at SBI drove other banking stocks, with Kotak Bank, ICICI Bank, Bandhan Bank, Federal Bank, Canara Bank and Bank of Baroda up 1-2 per cent.
Other major gainers included tech stocks like HCL Tech, Infosys and Tech Mahindra, which rose 2-3 per cent and shares of consumer goods companies like Hindustan Unilever, Nestle and Asian Paints also rose 1-2 per cent. Tata Steel jumped 4 per cent as steel prices continued to firm up on strong demand.
Analysts remain upbeat on the domestic economic recovery and feel another round of fiscal stimulus could help elevate sentiment further.
“The overall structure of the market remains positive. Economic recovery continues with high-frequency data for October coming in quite strong (GST collections, manufacturing PMI index, rail freight, power demand). More importantly, COVID-19 cases have seen meaningful decline. In addition, increase in economic activity, continued demand improvement, coupled with cost rationalisation has led to strong beat in second quarter earnings so far,” said Siddhartha Khemka, head, retail research, Motilal Oswal Financial Services.
