Stock market investors counting on strong Modi 3.0 return
Investors on Dalal Street remain on edge as they await the final counting of votes on June 4 to determine the winner of the Lok Sabha elections.
Market analysts and investors have largely factored in a strong win for the Modi-BJP-led National Democratic Alliance (NDA), reflecting in the recent market rally despite prevailing volatility
However, what happens if the Modi BJP does not secure a decisive victory?
Several brokerages have provided insights into potential market reactions based on different electoral outcomes.
If the Modi fails to retain a single majority or 272 seats, the domestic stock markets could witness a sharp correction.
Brokerage UBS warned that an unclear mandate could lead to political instability and potential policy paralysis, negatively impacting business sentiment and equity valuations.
“This could trigger knee-jerk reactions in financial markets in the near term, with equity valuations possibly testing pre-NDA levels,” UBS said.
Nomura suggested that in such a scenario, highly valued domestic-oriented sectors, including industrials, infrastructure, and PSUs, might see a sell-off.
However, sectors such as banking, consumption, and pharmaceuticals could outperform due to their resilience to political uncertainties.
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The brokerage firm predicted a broad sell-off across domestic-oriented sectors, particularly financials, industrial/infrastructure, consumer discretionary, and PSUs if the INDIA coalition secures a surprise victory.
In contrast, consumer staples, IT services, and pharmaceuticals are expected to outperform, as these sectors are perceived to be more stable and less dependent on domestic policy changes.
Meanwhile, Bernstein suggested that there could be heavy profit booking if the BJP secures 240 seats, while there could be moderate to heavy profit booking if the party wins 240-260 seats.Â
With BJP earning only 240 seats, heavy profit booking in the near term might lead to low or negligible returns for the markets this year.
Raamdeo Agrawal, chairman and co-founder of Motilal Oswal Financial Services, also warned that any unforeseen electoral outcomes leading to political ambiguity could result in sharp market corrections.
Ace investor and author Ruchir Sharma in a recent India Today Conclave session said the stock markets will be “down 10-20% in a flash” if the BJP wins less than 250 seats on its own.
“There is no doubt that if the BJP gets below 250 (seats), there will be an initial, big knee-jerk negative reaction on the market,” Ruchir Sharma said.
He said how the stock markets would interpret such a result will be the biggest risk going forward.
But all experts and brokerages agree that the BJP-led NDA are poised to win the Lok Sabha elections and return to power for a third term.
A strong BJP mandate is expected to benefit key sectors such as defence, capital goods, industrials, and power.
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Brokerage firm UBS highlighted that these sectors are likely to perform well if the BJP retains power, given the party’s focus on infrastructure and domestic manufacturing during its tenure.
Prabhudas Lilladher also echoed this sentiment, noting that policy continuity under the BJP-NDA would likely boost infrastructure, defence, capital goods, new energy, and tourism.
Consumer sectors, two-wheelers, and tractors could also gain from rising rural demand and favorable monsoon expectations.
Raamdeo Agrawal highlighted that sectors such as defence, infrastructure, railways, and capital goods would thrive if the Modi returns to power.
“These were areas where the government has focused on, invested money. High probability that the ruling government will continue. If they return… they’ll go with much more vigor,” Agrawal said.
“In the next 5 years, you’ll see major action from the government, powering these sectors.”
UBS and Nomura India predict positive market reactions if the Modi retains a single majority, with ubs setting 272 threshold.
A strong mandate would likely ensure policy continuity, fostering a favorable business environment and boosting investor confidence. Nomura expects sectors such as financials, consumer discretionary, infrastructure, and public sector undertakings (PSUs) to outperform if the Modi secures close to 400 seats.
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