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Lok Sabha polls: How share market may react under 3 possible elections outcome
Indian Market
Photo Courtesy: File image/Wikimedia Commons/BSE India

Lok Sabha polls: How share market may react under 3 possible elections outcome

| @indiablooms | 31 May 2024, 12:55 pm

Mumbai/IBNS: The six-week long Lok Sabha elections have reached its final stage with the Election Commission of India (ECI) going to hold the last phase of polls on Saturday (June 1), and the financial markets are eagerly waiting for the national polls' verdic, which is scheduled to be counted on June 4.

Political analysts and pollsters differ on the possible result of the election, with lower voter turnout and apathy seen as risks for the BJP-led NDA government.

Before the election began, opinion polls in early April predicted that the BJP would win close to 300 seats this time, about the same as in 2019.

However, the ECI does not permit exit polls before the last phase of voting ends.

In the last Lok Sabha elections (2019), BJP and its allies in NDA won 352 of the 543 seats with BJP alone winning 303 seats.

Though, days ahead of the 2024 verdict, the market seems to have already adjusted to the possibility that the margin of victory of Narendra Modi-led BJP, fund managers, analysts and economists expect markets to react under three possible different scenarios.

BJP clinches victory with more seats

If the BJP and its allies win a stronger majority than 2019, equity markets will rally in anticipation of growth-supportive economic policies, like spending on infrastructure and a push for the manufacturing sector, NDTV reports quoting ITI Mutual Fund's chief investment officer Rajesh Bhatia.

The report said that India's benchmark indices S&P Sensex and NSE Nifty 50 could rally 4-5 percent in the scenario, while the rupee could appreciate to around 82.80 levels against dollar from 83.32 at the close on June 4.

According to the report, the benchmark bond yield may dip to 6.90-6.92 percent from near 7 percent currently.

As per NDTV report, Narendra Modi's return as the Prime Minister with stronger mandate will be viewed by the market as a positive because it demonstrates political stability and implies policy continuity.

BJP-led NDA holds on to power, but with fewer seats

If the BJP-led NDA wins fewer seats than 2019, but still holds on to power with more than 272 seats, which is needed to form a government in the centre, markets may see some volatility in the short-term but settle quickly, reports said.

According to a report by NDTV, the market seems to have already adjusted to the possibility that BJP and allies will hold on to the power with lower seats than estimated, and a seat count below 300 for the current government will not alter the market's trajectory.

Under this scenario, the rupee and bond yields may not see a significant reaction, as per reports.

NDA loses election and opposition forms coalition government

If the BJP-led NDA faces a surprise loss in the election and opposition forms a coalition government led by Congress in the centre, it could lead to a sell-off in markets until the new government's policies become clear.

As per media reports, there could be an up to 10 percent fall in benchmark stock market indices in such a scenario immediately after the results are out, while some markets experts said the fall could be as large as 15-20 percent.

The Reserve Bank of India (RBI) may intervene to stem a decline in the rupee in this scenario, reports NDTV, quoting Anindya Banerjee, head of foreign exchange research at Kotak Securities.

Under this possibility, foreign outflows in bonds could lead to an immediate rise of 10-15 basis points in yields, according to reports.

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