Why Markets Have Rallied Despite AAP Victory?

Updated: Tuesday, February 10, 2015, 13:12 [IST]

Markets always have the tendency to surprise. The AAP is set to form the next government in New Delhi and has won the same with a super majority, which was practically unthinkable. The Aam Admi Party or the AAP is largely not considered a pro business or a pro corporate party, which is why logically the markets should have fallen. As we write the Sensex is up a huge 300 points.

Why Markets Have Rallied Despite AAP Victory?

Indices

Yesterday, markets had a dramatic fall when they sensed that the AAP was set to form a government in Delhi. Stocks like Reliance Infrastructure fell sharply as investors worried that the Kejriwal government would conduct an audit on power companies. But, despite the AAP victory the markets have rallied sharply in trade. Here are a few reasons for today's market rally.

Strong Macro Economic Data

The GDP numbers that came in yesterday were rather strong, despite the fact that they were revised advanced estimates. India's economy would in fact have grown faster than China making it the best in the world, if the advanced GDP estimate of 7.4 percent growth for fiscal year 2015 come true. Markets were completely buoyed by this data and saw solid buying.

Short Covering Rally

There was also a smart short covering rally say analysts. The markets had fallen for seven days in a row and investors found it a good opportunity to buy on dips. Banking stocks in particular saw a sharp rally on short covering. Stocks like State Bank of India and ICICI Bank saw a bounce.

Investors Betting On Lower Inflation

Investors are betting on lower inflation numbers due later this week. While retail inflation is expected around 5.4 per cent, the WPI inflation is expected to be flat. Optimistic inflation data saw some buying in trade.

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