Lok Sabha Elections 2024: On Friday, the benchmark Nifty-50 index reached a record-breaking high of 23,007.20, while the Sensex is also trading close to record highs. The anticipation that the National Democratic Alliance (NDA), led by the governing Bhartiya Janata Party, is likely to retake power is fueling the increases. As the fiscal deficit is expected to decrease, the Reserve Bank of India's substantial dividend distribution has also contributed to improving emotions. This will strengthen the Indian Rupee and increase foreign investors' trust in India. There will be robust GDP growth and increased government funding available for infrastructure and other development initiatives.
However, the following consequences might occur if the election results fall short of predictions and the ruling party is unable to establish a new government: Markets might experience a severe decline if election outcomes are unexpected.
According to Sunil Damania, Chief Investment Officer at MojoPMS, "The stock market could witness a substantial 20% decline in the less likely event that the election results significantly deviate from market expectations." According to him, it might take the market up to six months to settle and go back to its pre-election levels in such a situation."
Deepak Jasani, Head of Retail Research at HDFC Securities, said that the markets may see a significant decline if election results differ from forecasts and the BJP-led National Democratic Alliance is unable to establish a government. Sadi Jasani: The reforms would suffer and the parties' populist pronouncements might take center stage, harming market sentiment. Uncertainty about new changes will exist.
In its India strategy report, Bernstein noted that the government plays a significant role in facilitating orderly capital expenditure (capex). For that reason, a return on the NDA is beneficial, but a change is likely to result in haphazard growth with the risk of a shorter upcycle and structural challenges for those involved in capital expenditure after that. On the other hand, consumption could benefit more if opposition becomes stronger, at least initially. The drawbacks of such will be excessive inflation and a deviation from budgetary restraint.
Populism's comeback should the NDA fail to establish government Bernstein predicts a return to populism if the NDA is unable to win over 270 seats and the BJP wins fewer than 240 seats.
According to Bernstein, there will be significant impacts on infrastructure expenditure soon. The money will be transferred from infra projects to other social programs. Only the most feasible projects will emerge as a result of pressure on the private sector to engage in infrastructure; others may be canceled. Bernstein went on to say that business mood will fall in the near future. Increased taxes on corporations or the wealthy might provide tax reductions and subsidies for the impoverished. Direct foreign investment will decline.
The market's long-term Prognosis may still Hold True
Damania noted that after the election, the market's attention would shift to valuations, which will probably limit the market's upward potential. However, he said, the data analysis shows that the market is constantly greater than it was in the last election, irrespective of the party that controls the government. Damania thus think it's more crucial to prioritize long-term rewards above volatility in the short term.
Note: Finance Outlook India does not endorse or share the opinions or suggestions expressed above; rather, these are the opinions of certain analysts or brokerage firms. Before making any financial decisions, we suggest investors to consult with qualified specialists.
