Indian stock indices react to the big win for Modi’s BJP in state polls

Indian equities are rejoicing a sweeping victory for prime minister Narendra Modi’s Bharatiya Janata Party (BJP) in the country’s most populous state, Uttar Pradesh. The poll results indicate that the ruling party at the centre has a strong support base despite high inflation, unemployment, and a poor record of handling the second wave of covid-19 in April 2021.

The benchmark indices, Nifty50 and BSE Sensex, rose over 2% today to a one-week high. The rebound in shares, following a bloodbath post the Russia-Ukraine war, was in line with global stocks. Diplomatic talks between Russia and Ukraine have somewhat calmed sentiments, although analysts warn that volatility may remain.

The NSE’s India VIX, a gauge of the market expectation of volatility over the near term, was at 25.13 today, up 42% from a month ago.

What does Modi’s win in Uttar Pradesh mean?

An election result in Uttar Pradesh is seen as a bellwether of the prime minister’s popularity ahead of national elections in 2024.

“The emerging results give sanction to a model of governance that combines strongman politics, religious, communal, and populist appeal, and that performs despite deep economic woes,” Gilles Verniers, assistant professor of political science at Ashoka University, told Bloomberg.

The state is of prime importance in the federal parliament, accounting for 80 seats out of 543 in the Lok Sabha. This is higher than any other state in the country. At the time of publishing, BJP was ahead in 266 seats in Uttar Pradesh’s 403-member assembly, exceeding the majority mark of 202 seats, according to the trends reported by NDTV.

Verniers believes it sends a message that a party led by a strongman can win support without necessarily addressing the structural issues.

What is the outlook on Indian stock markets?

Analysts say it is a good opportunity to buy shares of high-quality financial institutions. The relief rally was due, as they believe Indian markets were extremely oversold after the recent selloff in shares.

“IT information technology, metals, energy, and pharma stocks have done well since they stand to benefit from the price and demand trends. For investors who are prepared to take more hit in prices in the short run, quality financials present a buying opportunity,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Morgan Stanley today (March 10) lowered its target for Sensex to 62,000 by the end of December. However, the projection suggests a 16% upside from current levels, which means “a higher confidence in the medium-term growth cycle in India.”

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