It was the best day-after-election-results performance for the markets
since 1998. The rupee jumped 0.7 per cent against the US dollar to end at 69.53 over its previous day's close of 70.
Market players attributed the appreciation in the rupee to sharp foreign inflows. Foreign portfolio investors (FPIs) bought shares worth Rs 2,026 crore on Friday, extending their weekly buying tally to Rs 5,891 crore.
Brent crude oil prices fell 4.5 per cent on Thursday and were down over 6 per cent for the week. Prices, however, edged slightly higher on Friday amid gains in global equities.
Experts said decline in oil prices would improve India's macroeconomic picture, provided there was more leeway for the government to push through reform measures and help corporates. "Stability in the macro environment will give legroom to the corporate houses to plan medium-to-long-term growth and instill confidence in foreign investors," said Vishal Kampani, managing director, JM Financial Group.
Market experts said certain FPIs were increasing their India allocation following the election outcome.
"With the ruling BJP set for another five-year term, political risks have reduced and market expectations of the government's continuity have been addressed," said Ravi Muthukrishnan, head of institutional research at Elara Capital.
"However, the current level of corporate fundamentals, geopolitical developments, such as trade wars and US-Iran conflict, and the progress of monsoon will weigh on the markets," he added.
Experts point out that the markets
are currently trading at valuations higher than their historical averages. The Nifty is currently trading at more than 18 times its estimated one-year forward earnings, compared to the 10-year average of 16 times.
For meaningful uptick in the markets, corporate earnings growth has to see a significant improvement, which is only possible over the next two or three quarters, experts said. Some, however, said in the near term, the markets
could overshoot valuations due to the favourable election verdict.