The BSE Nifty and the NSE Sensex both touched lifetime highs last week, on back of strong earnings reported by companies across sectors for the January-March quarter, and healthy domestic economic data.
Ira Singh
Khabar Khabaron Ki,08 May’24
As the Lok Sabha polls progress across the nation, the Indian stock markets are abuzz with anticipation, with investors eyeing a potential comfortable majority for the Narendra Modi-led National Democratic Alliance (NDA). The prospect of a decisive electoral verdict has reignited hopes of policy stability, continuity, and the implementation of further business-friendly reforms, fueling optimism among market participants.
The Narendra Modi- led government has been synonymous with pro-business policies and a reform- oriented approach ,which has resonated well with investors. The expectation of a continuation of such policies under a renewed mandate has bolstered investor confidence, prompting a bullish sentiment in the markets.
Besides, there is a concern of a situation similar to 2004, when the Vajpayee government was widely expected to win, but lost to the United Progressive Alliance (UPA) believe experts.
“Economy and markets have thrived under both NDA and UPA. But NDA scores in implementing key reforms, focus on infrastructure development, and inclusive growth. Opinion polls favour NDA, but markets are wary of a 2004-like outcome,” analysts at Prabhudas Lilladhar reportedly quoted as saying in a recent presentation on markets and elections.
According to senior market officials, the markets are expecting as much as 375 plus seats for the NDA in the 543-seat Lok Sabha. The markets have factored in policy stability, and a further push on manufacturing and infrastructure.
Indeed, most analysts feel that these two factors seem the most compelling to the market. The centre’s budgeted capital expenditure for the current financial year (FY25) is a record Rs 11.11 lakh crore, and as per the government, the Production Linked Incentive (PLI) schemes have seen over Rs 1.07 lakh crore of investment till December 2023, leading to production and sales of Rs 8.61 lakh crore and direct and indirect employment generation of over 678,000 people.
There are certain stocks that would be linked to election results and will see movement around counting day, in early June The government has taken various measures on the infrastructure and manufacturing front. The stocks related to these sectors will be impacted, stated officials.
Market experts believe, that if the NDA gets close to or above 400 seats, then there will be another rally in the markets. However, if the NDA secures closer to 300 seats, then there could be a sell-off. There could be a correction, but it will be short term, around 5-7%. The markets are working on an assumption of a GDP growth of 7-7.5%, which should be good enough to provide around 30% earnings growth.
What will set the course for the markets in the coming months will be the full Union Budget, expected in July. In her interim budget in February, Union Finance Minister Nirmala Sitharaman purposely stayed away from big-bang announcements, but laid out the reform roadmap if the Modi government is elected back to power, raising expectations among investors.
While the outcome of the elections is undoubtedly a key factor influencing market sentiment, experts emphasize that other factors will continue to play a crucial role in shaping market movements. Expectations of incremental reforms, rather than sudden upswings, should guide market participants in their assessment of future prospects. By adopting a comprehensive and nuanced approach to market analysis, investors can navigate the complexities of the financial landscape with greater confidence and resilience.
The Indian stock markets are hopeful of a comfortable majority for the NDA in the Lok Sabha polls, analysts caution that anything short of a strong mandate could result in short-term turbulence in the markets. Political uncertainty, coupled with concerns over policy continuity, looms as a potential risk factor that could sway investor sentiment in the near term.