Exit Polls Point to NDA Government, Markets May Rally 20%: Brokerages

Indian stock markets opened at record highs on Tuesday after most exit polls projected a win for Narendra Modi-led National Democratic Alliance in elections concluded on Monday. The BJP-led NDA is projected to win between 249 and 340 seats, according to six exit polls. It needs 273 seats for a simple majority.

Asia Pacific focused brokerage CLSA expects a strong and stable government, though it added that exit polls are not a final word.

Monday's exit polls have gone on to confirm opinion poll projections, which have consistently shown the BJP-led NDA ahead, raising expectations that the opposition party, which is seen by markets as being more investor- and business-friendly, will either win or come close to an outright majority.

But some investors had probably got a whiff of the exit poll numbers on Friday, when the Sensex witnessed its biggest rally since September 2013, rising 650 points. Since Friday, the Sensex has gained over 1,500 points amid strong buying by overseas investors.

Domestic brokerage Kotak said exit poll numbers are in in-line with Street 'whisper' figures, but post-election factors are more relevant now.

Australia-based Macquarie said exit polls offer "high margin of safety" and an absolute majority for NDA can lead to 15 to 20 per cent upside in the market. Bank of America Merrill Lynch expects the Sensex to surge to 25,500 by the end of 2014, saying exit polls indicate advantage for BJP-led NDA.

If NDA falls short of a simple majority, support of AIADMK, which is poised to win around 30 seats in the elections, will be critical, Macquarie said. The AIADMK is led by Tamil Nadu Chief Minister J Jayalalitha.

Global investment bank UBS did not rule out a sharp up move today as election-led sentiment may continue to drive markets. Major directional move is expected on May 16 and afterwards, it added.

However, Credit Suisse analysts were circumspect, saying May 16 could still throw surprises.

"We are still in a range of high uncertainty. State level numbers that add up to national totals vary widely and suggest high measurement error margins," Credit Suisse said.

In the past, exit polls have got it horribly wrong, so shares could plunge 8 to 10 per cent in one day if actual results show the BJP falling short of a majority.