India country-specific exchange traded funds surged Friday, with benchmark Indian indices touching new all-time highs, on hopes that the main opposition Bharatiya Janata Party will win the elections. However, some warn that the market should brace for a steep sell-off if victory is elusive.
On Friday, the WisdomTree India Earnings Fund (NYSEArca: EPI) rose 3.7%.
The Bombay Stock Exchange’s 30-stock S&P BSE Sensex touched a record high of 23048.49 in intra-day trading Friday while the National Stock Exchange’s 50-share Nifty Index hit 6870.50.
“There are some talks that in exit polls BJP and its allies may perform better than the market expectations,” Arun Gopalan, vice president of research at Systematix Shares & Stocks Ltd., said in a Wall Street Journal article.
The speculation helped fuel an early rally in the market, Gopalan added.
Exit poll predictions on the May 16 election will begin coming in Monday. Investors are betting that a victory for BJP will instigate greater policy reforms and bolster a beaten down economy. The BJP is widely viewed as more business-friendly than the ruling Congress party. [May Elections Could Be a Good Turn for India ETFs]
Others, though, are less sanguine on the polling results. Over the past two general elections in 2004 and 2009, opinion polls were surprisingly incorrect, Reuters reports.
When polling did not mirror the results in 2004, the NSE index fell 12.2% in one day and 19.0% over two days. Analysts predict India’s markets could plunge 8% to 10% in one day and up to 20% when all is said and done. Consequently, at least four brokerages have raised margin requirements to cushion the potential volatility.
The recent rally in Indian shares “has been largely in anticipation of NDA coming to power with a majority or near to majority,” Ritu Jain, managing director of investment bank Eos Capital Advisors, said in the Reuters article. “In the event of NDA not coming to power, markets can correct by about 15 per cent or a little more.”
India country-specific ETFs have produced strong returns this year on the optimistic turnout in the election season. Year-to-date, EPI is up 9.8%, the iShares MSCI India ETF (NYSEArca: INDA) rose 6.6% and PowerShares India Portfolio (NYSEArca: PIN) gained 5.4%.
WisdomTree India Earnings Fund
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Max Chen contributed to this article.