If the election result on June 4 also turns out to be in favour of Street favourite BJP, analysts see Nifty jumping as high as 24,000 in the next few days. The headline index had ended the week down nearly 2% at 22,531 as FIIs preferred to play safe ahead of the D-Day.
As the exit polls result now indicate a clear victory for the NDA alliance with 350+ seats, analysts say it is a shot in the arm for bulls who will trigger a big rally in the market on Monday.
“Largecaps in financials, capital goods, automobiles and telecom are likely to lead the rally. The bulls will be further emboldened by the better-than-expected 8.2% growth in GDP numbers which came after market hours on Friday. Technically and fundamentally the market is poised for a rally,” said Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Analysts believe that the current market volatility will settle down on Monday and the focus would shift towards the most likely outcome of the BJP emerging as the single-largest party with a stable government and policy continuity along with new reforms.Going by a majority of pollster’s exit poll predictions, NDA alliance could end up with 350-370 seats which is enough to form the government for the third time and is in line with median forecast ahead of the exit polls. However, this number is almost the same as that in 2019 and short of 400+ target of the alliance.”If the ruling coalition is able to cross the 350 mark again, it would be taken quite positively by the market. It would essentially mean a stable government with continuity in the policy framework. We expect public sector companies along with engineering, power, banks to lead the rally on Monday. Also, there could also be short covering by foreign investors which would further add to the party on the Street,” said Gaurav Dua of Sharekhan by BNP Paribas.Analysts are also cautious of the fact that the final seat count may be a little different on June 4 as the exit polls have predicted. “We also need to check the actual gains or losses in vote share by the two alliances. Unless we get a surprise in the balance exit poll predictions, Indian markets may not react majorly to these numbers. In any case, the disappointment or the euphoria may settle down in a couple of days and the focus may then shift to the policy announcements in the first 100 days of the new government,” said Dhiraj Relli, MD & CEO, HDFC Securities.
Once the euphoria settles down in the next few days, the market could see some profit booking on ‘buy the rumor and sell the news’, says Divam Sharma, Founder and Fund Manager at Green Portfolio.
Both Prime Minister Narendra Modi and Home Minister Amit Shah have predicted that the market will touch new highs after BJP’s victory.
Sharekhan expects a major structural reform rush in Modi 3.0, though the magnitude of the same would depend on the number of seats won. “In setting a roadmap for Viksit Bharat 2047, we anticipate major policy reforms for Ease of Doing Business to attract FDI investments and sovereign rating upgrades, driving higher flows into government bonds given their inclusion in global bond indices and other measures pertaining to judicial reform, Uniform Civil Code, land bill, a simplified tax code and bringing more products into the GST ambit,” Sharekhan said.
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Based on the current unanimous possible outcome of a BJP-led government, the brokerage expects domestic cyclical sectors such as infrastructure, industrials, defence, capital goods and automobiles, to continue to be the major beneficiaries.
In the short term, after the election outcome, for the next two weeks, small and midcaps could outperform largecaps with domestic cyclical sectors and PSUs in focus. After that, in the run-up to the Union Budget 2024-25 (to be presented in the first week of July 2024), there might be a possibility of profit booking with anxiety around tax overhaul, while lagging sectors such as Pharma, FMCG and IT would outperform, Sharekhan said.
While the final outcome may diverge from exit polls, a political continuity is likely to be good for risk assets in the immediate run and macro stability for the medium term.
Emkay Global said it expects reform-driven targeted expenditure agendas to continue from a policy standpoint, while a healthy macro balance sheet of all economic agents of India augurs well for a higher trend growth path.
“Once the election event risk is over, all eyes would be on the budget in July, which could continue with the consolidation process while improving the budget internals. We see twin deficits to further improve ahead, which limits external shocks to India further via financial channels in case the global cycle turns averse,” Madhavi Arora, Lead Economist, Emkay Global Financial Services said.
In case BJP alone wins 290+ seats and NDA 340+ seats, Bernstein analysts estimate an immediate market rally with high single-digit or low double digit returns for Nifty this year.
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