The national election, spanning six weeks, is nearing its end with voting concluding on Saturday. Financial markets are eagerly awaiting the results, which will be revealed after counting on June 4.
Experts and pollsters have differing opinions on the election outcome, with concerns about low voter turnout and voter apathy posing potential risks for Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP).
In the 2019 election, the BJP and its allies secured 352 out of 543 seats in the Lok Sabha, with the BJP alone winning 303 seats.
While exit polls are prohibited before the end of voting this Saturday, early April opinion polls suggested a sweeping victory for the BJP.
The informal betting market, often monitored by traders, forecasts that the BJP will win close to 300 seats, similar to their 2019 performance.
As the 2024 election results approach, fund managers, analysts, and economists predict various market reactions based on different scenarios:
If BJP secure a stronger majority than in 2019
Should the BJP secure a stronger majority than in 2019, equity markets are expected to rally, driven by anticipation of growth-friendly economic policies, including infrastructure spending and a boost to the manufacturing sector, according to Rajesh Bhatia, chief investment officer at ITI Mutual Fund.
Benchmark indices S&P Sensex and NSE Nifty 50 could rise by 4-5%, stated Abhishek Goenka, founder of IFA Global, a forex consultancy and asset management firm.
The rupee could strengthen to around 82.80 against the dollar from its current level of 83.32, and benchmark bond yields might dip to 6.90%-6.92% from near 7%, according to VRC Reddy, treasury head at Karur Vysya Bank.
PM Modi’s return is seen positively by the market as it signals political stability and policy continuity, noted James Thom, senior investment director of Asian equities at abrdn in Singapore.
If BJP Holds Power With Fewer Seats
If the BJP and its allies win fewer seats than in 2019 but still exceed the 272 seats needed to form a government, markets may experience short-term volatility but stabilize quickly.
The market appears to have already adjusted to the possibility of a narrower victory margin for the BJP and its allies, said Gaurav Dua, head of capital market strategy at Sharekhan, a brokerage.
A seat count below 300 for the current government will not significantly impact the market’s trajectory, according to Umeshkumar Mehta, chief investment officer at Samco Asset Management.
The rupee and bond yields are unlikely to see significant changes in this scenario, added Vijay Sharma, senior executive vice president at PNB Gilts.
If Opposition-Led Coalition Forms Government
A surprise loss for the BJP and the potential formation of a coalition government led by Congress could cause a market sell-off until the new government’s policies are clarified.
The market favors continuity, so a victory by another party could trigger an immediate negative reaction, said Mittul Kalawadia, senior fund manager, equity, at ICICI Prudential Mutual Fund.
“Whether in the long run things are positive or negative we will know later, but in the short-term any change which impacts policy level continuity will be a big negative,” Kalawadia remarked.
IFA Global’s Goenka predicted a potential drop of up to 10% in benchmark stock market indices in such a scenario, while Sharekhan’s Dua suggested the fall could be as large as 15-20%.
In this situation, the central bank might intervene to prevent a decline in the rupee, said Anindya Banerjee, head of foreign exchange research at Kotak Securities.
Foreign outflows from bonds could lead to an immediate rise of 10-15 basis points in yields, Banerjee added.
