Expert Zone

Straight from the Specialists

Unclear messages from the electoral tea leaves


(Any opinions expressed here are those of the author and not of Thomson Reuters)

The past 12 months have been characterized by the narrowest market in two decades although sectoral performance varied significantly. While the markets are likely to be range-bound, valuations are expected to rise in 2014, especially in the first half.

Based on a one-year forward PE range of between 12.5 and 15 times and our top-down FY15 earnings growth forecast for the Nifty of between 10 percent and 15 percent, we expect the index to trade between 5,500 and 6,900 in 2014, with a target of 6,900 — an implied increase of around 10 percent relative to current levels.

National elections will take place before May 14 next year. Historically, a surprise outcome has moved markets by between 15 percent and 20 percent either way.

Based on Narendra Modi’s strong governance track record and his reputation of being pro-industry, investors are positively inclined towards the BJP. They are less inclined towards the Congress despite policy course corrections. The recent rally implies that markets no longer view a BJP victory as unlikely — a factor that may be priced in from a near-term perspective.

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