May 16--MUMBAI -- Indian stocks erased most of their early gains but closed higher as the Bharatiya Janata Party (BJP) is set to get a majority in the Lok Sabha elections.
Earlier in the day, BSE's 30-share Sensex rose as much as 6.15%, or 1,470.03 points, to 25, 375.63 while National Stock Exchange's 50-share Nifty gained as much as 5.47%, or 389.80 points, to 7512.95.
Market later erased most of the gains. The Sensex closed 0.90%, or 216.14 points, higher at 24,121.74, while Nifty added 1.12%, or 79.85 points, to 7,203.
The Indian rupee also lost early gains and was trading 0.38% higher at 59.065, after rising to a 11-month high of 58.62 against the dollar earlier in the day.
"I am also stunned the way market has reacted even after BJP is having a clear win. It is the end of coalition and end of opposition. It is after a long time that we will have a party with such a big majority without any alliance," said Raamdeo Agrawal, joint managing director,
According to Agrawal, Friday's market movement was a clear example of "buy on rumour and sell on news"
"People bought and bought and now they seem to be booking profits. But, the story does not end here. Investors are getting in and speculators are out. It is a start of a new bull run, new policies and new earnings cycle," Agrawal said adding that he expects markets to rise ahead of the unveiling of the budget by a new finance minister later this year.
To be sure, Sensex and Nifty have risen 22.2% and 23.3%, respectively, since 13 September, when Narendra Modi was announced as the prime ministerial candidate by BJP.
"A lot of positions had been built up across asset classes over the last few days, specially in the stock markets. So there will be some profit booking. But we should see fresh flows coming in from here," said Ananth Narayan, co-head of wholesale banking for South Asia at
"There is room for further upside but there have to be some bouts of correction," he added.
The National Stock Exchange's India VIX, which indicates near-term market volatility, plunged 34.62% to 24.0350, hinting that the early leads were soothing investors' sentiment.
"Market was already expecting NDA to lead and those expectations have been met. Investors had been buying for a while on these hopes, and had added when the exit poll results were announced, and hence, there is some amount of profit-booking taking place at higher levels," said Ambareesh Baliga, managing partner, Edelweiss Global Weath, an arm of
"Such bouts of profit bookings are not ruled out in days to come. However, the market now seems to have a clear direction as ambiguity as to elections is coming off," added Baliga.
In a note on Friday, ICICI Securities said it expects Nifty to scale 8,100 by the year end based on a forward price to earnings multiple of 16.7 times.
"Global economic recovery, India's GDP growth bottoming out in FY2014 and a pro-growth reformist stable central government are all structurally positive for the economy, which calls for a re-rating of Indian equities," ICICI securities said in the note.
Among Sensex components,
The BSE Realty and BSE Bankex were top sectoral gainers up 5.97% and 4.39%, respectively.