Market Reaction To Exit Polls Better Than Expected, Says Analyst

The broader equity markets rising on Monday, coupled with the outperformance of select stocks, is reflective of the influence of the exit polls that have predicted a third consecutive term for Prime Minister Narendra Modi.

That's according to Abhay Agarwal, founder of Piper Serica Advisors Pvt., who said markets witnessed a "catch-up" rally driven by the exit poll results.

Exit polls have forecast the Bharatiya Janata Party-led National Democratic Alliance to return to office with a clear majority for a third consecutive term.

"We were confident that whatever the poll outcome will be, it's not going to be negative, and investors will look beyond the election," he said.

Agarwal said the markets could witness a continued rally in the coming weeks if the poll results turn out to be stronger than expected, adding that many investors have increased their cash allocation in their portfolios over the past month. "They aren't yet that confident and would wait for the poll results."

The fund manager referred to foreign investors pulling out their money from Indian equities in May and said that it was driven by the "big event,"  or the election. The investors would have recovered their shorts from Monday's trading session, backed by the certainty brought in due to the exit polls, he said.

Deven Choksey, managing director at DRChoksey Investment Manager, pointed to the uncertainty during the 2019 and 2024 Lok Sabha elections.

In 2019, the India VIX—or volatility index—touched 30 and fell to 15 after the results, he said, adding that during the current elections, the VIX is only around 20 and after the results, it can come down to 10 or 11. "To a certain extent, this situation is normal."

On Monday, the NSE Nifty 50 gained 733.20 points, or 3.25%, to close at 23,263.90, and the S&P BSE Sensex rose 2,507.47 points, or 3.39%, to end at 76,468.70. Both the indices renewed their intraday highs of 23,338.70 and 76,738.89, respectively.

Paras Matalia, fund manager and head of equity research at Samco Mutual Fund, referred to sectors that will come into play once a new government gets sworn in.

"Looking at the last two NDA (the Bharatiya Janata Party-led National Democratic Alliance) wins, they have usually beaten most exit poll results," he said. "If that happens this time too, markets might see further upside—especially the PSUs and sectors like defence, power, manufacturing, and renewable energy—benefiting from the government's focus."

Investors should stay invested, but with caution now that valuations have become more expensive, he said.

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