Local brokers upbeat on Sensex after BJP win, foreign banks cautious

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The BSE Sensex and the broader Nifty hit record highs on Monday after the opposition Bharatiya Janata Party, perceived by many investors as being more business-friendly, pulled off a near four-zero victory in state polls.

The Sensex surged as much as 487 points to a life-time high of 21,483.74, while the Nifty edged past the 6,400 levels for the first time in history. The Nifty hit an all-time high of 6,415, bettering its January 2008 record high of 6,357. The rupee hit a four-month high.

Traders attributed the sharp gains to the emphatic victory for BJP, now seen as a clear frontrunner in the general elections due in 2014. Some domestic brokerages even predicted the BJP to get a simple majority of its own in the general elections due by May next year.

Market veteran Raamdeo Agarwal of Motilal Oswal Securities said this is not a 4-0 mandate, but a 40-0 win for the BJP. This is not a semi-final, but almost a final for the markets, he added.

Madhav Dhar, managing partner of GTI Capital told NDTV that this verdict is more of a vote against the ruling Congress Party. The results are an affirmation that we had unsustainable policies and a lot of cynics about India will pause and say wow things will change, he said.

"The economy will be on a 7 per cent growth trajectory, inflation will be below 7 per cent and corporate profits will rise. Markets will be substantially higher that what it is today," Mr Dhar added.

Some foreign brokerages, like Asia-Pacific brokerage CLSA, which had been predicting a BJP victory all along, said the prospects of a stable government after 2014 elections are rising.

Most other global investment banks, however, were cautious in their outlook and said a lot can change between now and the polls in 2014. Credit Suisse said the assembly poll outcome was not exactly the "4-0" expected by markets.

The brokerage also said that fundamentals on the ground continue to deteriorate in an apparent reference to India's sluggish economy and high inflation.

Macquarie said the positives from state elections are somewhat factored in the markets. The general elections are still six months away, so there's still uncertainty, it cautioned.

Other issues (economic, global) will take precedence over near-term enthusiasm, it added.

Bank of America Merrill Lynch said it is important to note that the four states are traditionally BJP strong-holds. State results are not enough to indicate the direction of 2014 elections,