Day after exit poll euphoria, reality check for markets

Equities, after a historic rise after the exit poll predictions that continued into Tuesday’s opening, underwent a reality check after profit-booking eroded part of the gains.
Image for representational purpose only.
Image for representational purpose only.

MUMBAI: Equities, after a historic rise after the exit poll predictions that continued into Tuesday’s opening, underwent a reality check after profit-booking eroded part of the gains. Nifty touched a new high of 11,883 on Tuesday before trending lower to close at 11,709, down 1 per cent (119.15 points). Sensex too hit an intraday and record high of 39,571 but ended close to a per cent lower at 38,969.

Among Sensex stocks, Reliance, Bajaj Finance and Hindustan Unilever were the only ones that ended in green. All the banks and other financials that had a field day on Monday ended in red after hitting intraday highs. Bajaj Finance, after a stellar fourth quarter earnings at a time when other NBFCs were fighting liquidity crunch, hit a Rs 2 lakh crore market cap.

“We see the equity valuations as ‘fair’ relative to our macro models, but a potential for ‘valuation overshoot’ in the near-term if exit polls come true. In the medium term, we expect NIFTY returns to be largely driven by mid-teen earnings growth (aided by banks) with a 12-m NIFTY target of 12,500,” Goldman Sachs said in a report. After a record surge on Monday, with markets trading at 18 times forward earnings, Goldman Sachs said it sees limited fundamental headroom for any significant re-rating.

Data from NSE showed that foreign portfolio investors continued to be net buyers while domestic investors continued to be net sellers on Tuesday. Some traders caution against creating fresh positions ahead of the final poll outcome on Thursday. However, they say the risk to downside on Thursday would arise only if the predictions for NDA and UPA are far off the mark from what exit polls have predicted.

“Technically, while the Nifty has corrected, the underlying trend remains up. Further upsides are likely once the immediate resistances of 11,857-11,884 are taken out. Crucial supports to watch for any weakness are at 11,682-11,657,” said Deepak Jasani, Head of Retail Research, HDFC Securities.DBS Group in a report said there is unlikely to be any material change to growth prospects this year and reiterated its prediction of average 7 per cent GDP growth. The outcome as per exit polls would remove a risk event from the horizon, it said.

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