If the June 4 election results also go in favour of the Street-backed BJP, analysts expect the Nifty to surge to 24,000 in the coming days.The key index had fallen nearly 2 per cent to end at 22,531 over the weekend as FIIs played it safe ahead of the D-Day.
With exit poll results pointing to a clear victory for the NDA alliance which won over 350 seats, analysts say this will be a boost for the bulls and trigger a big bounce in the markets on Monday.
“Large cap stocks like financials, capital goods, auto and telecom are likely to lead the rally. The better-than-expected GDP numbers coming out after the close on Friday will further buoy the bulls. Technically and fundamentally, the market is poised to move higher,” said Dr VK Vijayakumar, chief investment strategist at Geojit Financial Services.
Analysts believe the current market volatility will calm down on Monday and the focus will shift to the most likely outcome of the BJP emerging as the single largest party with a stable government, policy continuity and new reforms. According to most of the exit poll forecasts of pollsters, the NDA alliance may end up winning 350-370 seats, enough to form the government for a third time and in line with the median forecast before the exit polls. However, this figure is almost the same as in 2019 and falls short of the coalition’s target of 400-plus seats. “If the ruling coalition can cross the 350-seat mark again, the market will take it quite favourably. It basically means a stable government with continuity in the policy framework. We expect public sector companies along with engineering, power and banking to lead the rally on Monday. There may also be some short selling by foreign investors, adding to the excitement on the Street,” said Gaurav Dua, Sharekhan, BNP Paribas. Analysts are also cautious that the final seat count on June 4 may vary slightly as predicted by the exit polls. “We also need to see the actual increase or decrease in vote share for the alliance. Barring any unexpected developments in the exit poll projections, Indian markets may not react significantly to these figures. In any case, the disappointment or euphoria may subside in a few days and the focus may shift to policy announcements in the new government’s first 100 days in power,” said Dheeraj Leri, MD & CEO, HDFC Securities.
Dibam Sharma, founder and fund manager at Green Portfolio, said once the frenzy dies down in the coming days, the market could see some profit-taking in the form of “buying the rumor, selling the news.”
Both Prime Minister Narendra Modi and Home Minister Amit Shah have predicted that the markets will reach new highs after a BJP victory.
Shere Khan expects Modi 3.0 to fast-track major structural reforms, the extent of which will depend on the number of seats won. “As we set out the roadmap for Vikshit Bharat 2047, we foresee major policy reforms to improve the business environment to attract FDI investments and upgrade of the sovereign’s rating. We also foresee increased inflows into government bonds as they are included in the global bond index. We also expect measures on judicial reforms, Uniform Civil Code, Land Bill, simplification of tax laws, expansion of GST scope of products etc,” Shere Khan said.
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The brokerage expects domestic cyclical sectors such as infrastructure, industry, defence, capital goods and auto to continue to be major beneficiaries given the likelihood of a unanimous BJP-led government coming to power.
In the near term, small and mid-cap stocks are likely to outperform large caps in the two weeks following the election results, with focus on domestic cyclical sectors and state-run companies. Thereafter, as the Union Budget 2024-25 (due in the first week of July 2024) approaches, worries over tax reforms may lead to profit-taking, while laggards like pharma, FMCG and IT are likely to perform well, Sher Khan said.
While the final outcome may differ from the exit polls, political continuity is likely to have a positive impact on risk assets in the short term and macro stability in the medium term.
From a policy perspective, MK Global expects reform-led focused spending plans to continue, while it said healthy macro balance sheets of all economic agents in India bode well for a higher trend growth trajectory.
“Once the election event risks are over, attention will turn to the July budget, where the fiscal consolidation process is likely to continue with improvements internally. We expect the twin deficits to improve further going forward, further limiting external shocks to India through monetary channels in case of a turnaround in the global economic cycle,” said Madhav Arora, chief economist at Emkay Global Financial Services.
If the BJP wins more than 290 seats on its own and the NDA wins more than 340 seats, Bernstein analysts expect the market to surge immediately with Nifty returns in the high single digits to low double digits this year.
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