Monster rally on the cards post elections! Sensex seen at 26-27k by 2014-end

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Even after rallying over 13 per cent so far in the year 2014, most analysts on the Street expect the euphoric rise on the S&P BSE Sensex to continue for the rest of the year as well, cemented by hopes of a stable and reform-oriented government at the Centre.

The S&P BSE Sensex has already rallied over 500 points in trade on Tuesday to hit its fresh lifetime high of 24068.94, after exit poll results showed that the BJP-led National Democratic Alliance (NDA) is expected to win India's general elections comfortably.

"The Modi wave seems to be real after all, vote share for the Congress might just be the weakest since 1977, and regional parties do have a role to play, albeit marginal," Religare Institutional Research said in a note. The markets would see a jump on confirmation of the new government, with our expectation of 5-10 per cent, added the report.

The runaway rally seen so far on the benchmark indices can extend by over 10 per cent if a stable business-friendly government comes to power. It is widely expected that the new government will usher in policy reforms and faster economic growth over medium term, which is a long-term positive for Indian equity markets.

And even if there are some bouts of profit taking after the results on 16 May, analysts advise investors to stay long as the monster rally is yet to come in. The Sensex is expected to rally another 2500-3000 points by December-end and the 50-share Nifty index should hit the levels of around 7800-8000.

The Sensex could rise by up to 3000 points from the current levels by the year-end as a new business-friendly NDA government implements reforms and removes hurdles to investment, a majority of participants in an ET poll said on Monday.

Even though the fundamental picture looks shaky at this point in time, but markets are always quick to discount the good news, say experts.

"We are going to see a monster of a rally. I am not talking about the immediate short term, but from a three to five-year point of view. Fundamentals will come later, but the market would try to price in most of the positives that a very stable government can provide," said Manish Sonthalia, Sr Vice President & Head-Equity Portfolio Management Services, Motilal Oswal Asset Management-PMS.

"We could see the markets touching 7800 to 8000 levels on the Nifty, just after the results on May 16. If these numbers were to come true, you could see the markets fly," he added.

Analysts at top brokerage firm see benchmark indices rallying 10-15 per cent in 2014 if NDA manages to get over 240-260 seats in the results for the 16th Lok Sabha elections. Most analysts on the Street think that the markets are currently pricing in around 230 seats for the NDA.

However, if the outcome is better than this, the markets could rally further from here on. The current PE multiple is around 13.8x for the Nifty, which is still below the long term average and not far from where it was in 2009 before the elections.

Despite over 30 per cent return in the last twenty months, Quant Capital expects the Nifty can deliver another 8-10 per cent return from the current levels, if the outcome positive on May 16th.

"We are still maintaining our year-end Nifty target of 8000 and for the Sensex we expect the index to test the higher level of 26500," added the report.

Expectations of a stable, reform-oriented government could continue to lead to strong foreign flows into Indian equities. India has received only US$5.5 billion in equity inflows year-to-date, compared to an average of US$22 billion in 2012 and 2013.

Frontline stocks have rallied strongly in the last two trading days ahead of the exit polls on Monday evening, led by foreign institutional purchases which have already crossed Rs 5,000 crore in the Indian market so far this month on hopes of a stable and reforms-oriented government.

FIIs have been the major contributor to the rally that we have seen in the Indian equity markets so far in the year 2014, and the trend is likely to continue for the rest of the year as well, say experts.

Raamdeo Agrawal, MD & Co-Founder, MOFSL, is of the view that FII inflows into Indian equity markets are going to increase multi-fold if we get a good mandate.

"The big investors cannot speculate in next series because I have seen big moneys getting ready to come into India if we get a good mandate," says Agrawal.

"We are going to see sustained inflow because in terms of emerging markets, there are not many emerging markets where they can go. China is out of favour, Russia is what is happening, and Brazil has gone nowhere," he added.

This article taken from Economic Times : http://m.economictimes.com/markets/...t-26-27k-by-2014-end/articleshow/35057897.cms
 

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