With the BJP-led NDA sweeping the polls even more than what the markets had expected, foreign institutional investors (FIIs) stepped up buying this week with big bets on the the return of the India Story. FIIs were already bullish on the markets, in anticipation of a more stable government at the Centre, after BJP announced Narendra Modi as its PM candidate.
Foreign investors have invested $14.5 billion in equities since September 1, 2013.
“We are raising our December 2014 Sensex target to 28,000 from the earlier 24,000,”said Abhay Laijawala and Abhishek Saraf of Deutsche Bank Markets Research.
The benchmark index closed at 24,374 on Thursday, implying a possible 15% appreciation from current levels.
“Markets will continue to rally throughout the course of this year and may reach 27,000,” said Jyotivardhan Jaipuria, managing director and research head , Bank of America, Merrill Lynch.There is a historical precedence as well, he added.
Similar to 2014, in 2009, markets went up by 18% in 6 months before the result day and continued to trade at a 16-18 price to earnings (PE) ratio till the year-end, according to data from Bank of America Merrill Lynch.
However, some domestic and global factors are likely to play out, said experts. These include the El Nino effect (a weather phenomenon in the Pacific) and economic data. Globally, rollback of US’ monthly stimulus measures are likely to move markets.
Analysts said mid-caps will outperform the Sensex and Nifty. “As the economy recovers, the valuation differentials (between mid-caps and Sensex/Nifty stocks) will narrow,” said Jaipuria.
The new focus will be on cyclical stocks — those whose prices are affected by market movements — and companies with a domestic focus.
Jaipuria is bullish on autos, financials, cement, energy and industrials.
Among the large-caps, Maruti, ICICI Bank, SBI, ONGC, and UltraTech are likely to appreciate, while from the mid-cap pack, Jaipuria is bullish on Eicher, Motherson and Yes Bank.