Indian could witness a rise in foreign capital inflows after the Lok Sabha elections, while domestic investors are likely to stay cautious, said Inderjeet Bhatia, head of research at Macquarie.

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“We don’t believe that a lot of the foreign institutional investors (FII) money has come only because of the election expectation. India has gone up or attracted foreign money because of the global trade in which risky assets got money," he added.

Bhatia added that while the FII inflows will sustain in the second half of 2019 as well, there will not a significant upside in the frontline indices. "We think valuations very clearly have caught up there but we think that there is an opportunity in the broader market right now,” he said.

On election results, Bhatia said the market likely to maintain status-quo in case the BJP-led NDA government reelected in the same shape. "However, would that mean that market is going go up substantially because election results have come out? We have doubts on that."

He expects a knee-jerk reaction in markets if NDA would get 220 seats versus the expectation of over 260 seats.

Looking at the largecap and the constitution of indices, a very large part of the market is already trading at close to all-time high valuations, factoring in very strong earnings growth for FY20, he said. "So I think a combination of high multiples and high earnings expectations limit upside to the frontline markets.”

“There could be short-term downside if the numbers are substantially below what is being talked about. If you look at the polls right now, they are putting numbers of National Democratic Alliance (NDA) at roughly around 260-280 kind of a range, if this slips to more like 220-230, there could be a short-term blip,” he further mentioned.

Speaking about IT, Bhatia said, “We had a very stellar run in last 12 months, which surprises both on multiples. If you have a call that money will continue to come in to India, that means the rupee will remain well supported and if you don’t have a rupee tailwind, it is very difficult to rerate this sector further.”

First Published:Apr 12, 2019 12:56 PM IST