UBS says that the sentiment regarding Narendra Modi’s re-lection in 2019 will drive stock markets in the medium-term. Notably, while the blue chip stocks in the Sensex and Nifty have been going string, the small and midcaps are just coming out of a major correction. According to the global firm, the local mutual fund flows have had more relevance than foreign flow for small and mid-caps stocks.
However, the firm says that the best of local fund flow supporting small and mid-cap stock performance may be behind us. “The pace of MF buying has slowed and SMIDs have underperformed the Nifty in 2018 – contributing to A Tale of Two Markets, which has hurt investors’ sentiment,” UBS noted. According to the global firm, a key local factor for Indian markets over the next 3 quarters will be investors’ perception of will Modi win in 2019?
“Our discussions with investors suggests that most presume Modi will win the 2019 national election. We would remind investors to keep an eye out for opposition alliances, given the role of arithmetic vis-à-vis narrative in the context of the Indian electoral system,” UBS said in the report.
According to a recent survey by UBS, oil prices are the most important driver for the Nifty50, followed by local fund flow and the 2019 elections. Interestingly, while the Indian rupee continues to tumble, USD-INR exchange rate turns out to be the least important driver out of the five factors, followed by bank NPL resolution. “Market sentiment around the Nifty seems to be more “Neutral”, as 38% of investors indicated Neutral sentiment, while an equal number were bearish as bullish, with an average score of 3.03 on a scale of 1-5,” UBS said in the report.Last modified on Friday, 17 August 2018