Indian shares surged to record closing levels on Monday, with gains spread across most sectors after exit polls indicated Prime Minister Narendra Modi would retain power with an even bigger mandate than in 2014.
Exit polls predicted an overwhelming victory for Modi's National Democratic Alliance (NDA), which is expected to win between 339 and 365 seats in the 545-member lower house of parliament when votes are counted on Thursday.
The BSE Sensex closed up 3.75% at 39,352.67. The NSE Nifty ended 3.69% higher at 11,828.25.
"What would help the markets sustain are factors like decisive policy initiatives from the new government, faster land and labour reforms, and also the unfinished task of quick consolidation and re-organisation of the banking system," said Joseph Thomas, head of research at Emkay Wealth Management.
Both indexes recorded their biggest intra-day percentage gain since May 16, 2014 when Modi won his first term.
Financials led the gains with Indiabulls Housing Finance Ltd closing 12.6% higher while State Bank of India ended up 8%. Index heavyweight Housing Development Finance Corp rose nearly 6.5%.
Technical analysis showed the NSE Nifty at an RSI level above 60, indicating further upside.
Rupee bonds gain
India’s bonds and rupee have both held in a tight range in recent weeks despite the positive underlying bias as investors stayed on the sidelines awaiting the election outcome.
Low inflation and foreign fund inflows have aided the rupee while the central bank’s efforts to ensure adequate liquidity in the banking system through forex swaps and open market bond purchases have helped bonds.
The partially convertible rupee was trading at 69.53/54 per dollar at 0602 GMT, after rising to 69.3550 earlier, making for a 1.2 percent gain on the day. The increase, if sustained, would be the highest since December.
Investors expect the rupee to hold in a 69-72 per dollar range in the medium term with global oil prices having the potential to push it lower.
The rupee had closed Friday at 70.22. Further gains in the rupee will also depend on flows into the stock markets.
The benchmark 10-year bond yield was trading at 7.30 percent, down 6 basis points on the day after briefly falling to a low of 7.28 percent.
Though investors are happy with the idea of continuity, they felt that a lot of the work that has been done by the government to generate economic growth has not yet been felt. They said the second five-year term would give Modi the opportunity to implement those reforms and deliver on growth.
“I would expect more over the next five years,” said David Cornell, Chief Investment Officer at Ocean Dial Asset Management.
“A lot has been done but a lot more needs to happen in terms of the judiciary, generating employment growth, public sector divestment, attracting foreign investment, improving the fiscal deficit. So there is an awful lot more that needs to be done.”