Impact of Exit Polls 2019 on Stock Market

Exit Polls 2019 & Stock Market Performance

Exit Polls were declared on 19^th May 2019. In all the polls, it is being shown that NDA is receiving 300+ numbers. As a result of the exit polls numbers that NDA received, Sensex and Nifty have gone up on Tuesday, 20th May, 2019 by around 1400 and 400 points respectively. The stocks markets has rallied by 3% to 4%.

Exit Polls 2019 & Stock Market Performance

• The rallies in the large cap category may not happen much more from this point. The markets have already factored in the range of 11,800-12,000 as a Modi victory. So, if on 23^rd May 2019, NDA receives comfortable majority, 300+ and not 272+. Because if NDA requires more than one alliance to make the government then the markets won’t favour that much. Markets would only favour a NDA government with they having 300+ seats.
• Thus, Nifty will rise till the range of 11,800-12,000. The market is already trading with a PE of 28+. And the large caps may not experience much of rally unless and until the Earnings Per Share, that is the profitability of Nifty or Sensex or the large cap companies increases. Thus, the market would consolidate between 11,000-12,000 without much large cap oriented rallies and considering NDA government majority in the election results.
• But that is not the end of it. The small and mid-cap categories have too rallied by almost 4% today. And even after this rally these categories are down by 15%-20% compared to their 52-week highs. Thus, small and mid-cap category can be an opportunity.

Impact of Exit Polls 2019 on Stock Market

Mutual Funds

• In terms of mutual fund, the multi cap funds which were large cap oriented till now, can now take considerable allocations in small and mid-cap categories. Investors can find opportunities in multi cap funds and large & midcap funds.
• From this pint moving forward even value funds and contra funds, where infrastructure, cement and banking bets are already made, can perform well because of a stable government being formed.

Sectorial Performance

• If a stable government is formed then a lot of focus can be given to infrastructure. Thus, infrastructure sector would benefit a lot from this.
• Defensive sectors which are consumption driven, FMCG particularly, might remain sluggish for the next couple of years. They perform negatively but a lower double digit or higher single digit kind off returns can be expected from the FMCG sector.

NBFC & Housing Finance Segment

• In the NBFC and housing finance segment, companies like Bajaj Finance and HDFC Ltd. are looking very strong right now.
• The government as a lot of focus on their ‘Housing for all’ scheme. As a result of that housing finance companies can benefit a lot from that.

Summary

• All the things discussed above will happen if NDA wins with comfortable majority on 23^rd May 2019. The market has already given us indications that if that happen then the  market can run from here, but this run would be in the broader market and large caps having very less contribution in it.
• All in all, the market will remain in the 11,800-12,000 levels for a next couple of months. Nifty can go till 12,200 and maybe stay there or come down, but that would only be because of the positive sentiments everywhere and NDA having a fantastic win in the 2019 elections. But as everyone here is expecting that the market will go up similarly like it went on 20^th May 2019, there is very low probability of that as the market has already factored in a NDA win and which is also why it did not fall much.
• The large caps may not be as rewarding as the small and mid-cap categories may prove to be in the coming times.

Notes: –

• The numbers that are used are approximate and have been rounded for presentation purposes.
• We are also not suggesting anyone to immediately go and buy these stocks or invest in the stock markets.
• Only an analysis has been presented here. No judgments or final statements are being made here.