Gujarat Assembly Elections 2017: Why markets reacted positively to BJP's win
If there was one thing more interesting than the seesaw battle over Gujarat Assembly between the BJP and the Congress witnessed this morning (December 18), it was the almost real-time impact of politics on business played out on Dalal Street.
Sensex crashed by over 850 points and Nifty nosedived by about 250 points as initial trends showed that the Congress stood a chance to disrupt the BJP's winning streak in Prime Minister Narendra Modi's home state.
However, the markets recovered quickly as the BJP came from behind to establish a commanding lead over the Congress. The development makes it clear that BJP is the preferred party for Indian businesses.
In early trade, the Sensex fell 2.6 per cent or 867.34 points, while the 50-share index Nifty was down 2.5 per cent as trends showed a neck-and-neck fight between the BJP and the Congress in Gujarat and a clear majority for the former in Himachal Pradesh Assembly elections.
The Sensex opened at 33,364.52 against the previous close of 33,462.97 and touched the day's low of 32,595.63. The Nifty, meanwhile, opened at 10,263.40 against the previous close of 10,333.25 and touched the day's low of 10,074.80.
At 10.06am, however, Sensex was up 0.24 per cent to 33,543.10 points, while the Nifty was trading higher by 0.21 per cent to 10,355.30 points. And no, the markets were not reacting on an impulse. That the markets see hope in Modi's leadership and are wary of having Congress in power was made clear by broking firm CLSA.
On December 14, CLSA said that a weaker-than-expected performance (from the BJP) could be interpreted negatively.
The Sensex hit an intraday high of 33,801.90, a gain of 338.93 points. The reading is closer to the all-time high of 33,865.95, reached on November 7.
At 1.35pm, Gujarat-based companies such as Gujarat Alkalies and Chemicals Ltd, Gujarat State Fertilizers and Chemicals Ltd undid early losses to rise to over 1.5 per cent each. Adani Enterprises Ltd, which dropped as much as 10 per cent earlier in the day, was trading up 1.5 per cent.
Indian markets had given a thumbs-up even when the Narendra Modi-led BJP won a clear majority to form a government at the Centre in 2014. Experts had then said that Modi's biggest challenge would be to meet the expectations of the markets.
The movement of indices today shows that much of that confidence in Modi's leadership is intact. Despite the economy suffering the double blow of demonetisation and GST, a looming agrarian crisis and lack of job opportunities, the trust in Modi's ability to steer the country through the economic mess holds.