As the anticipation for the Lok Sabha election results intensifies, investors have driven the Sensex up by over 3,500 points in a remarkable Rs 26 lakh crore rally. Since voting began on April 19, with the Sensex at a low of 71,816.46, it has surged to a closing of 75,390 on Monday, marking a gain of over 3,570 points. During this period, the market capitalization of all BSE-listed stocks increased by Rs 26.36 lakh crore, reaching Rs 419.95 lakh crore.
Historical patterns suggest that market volatility is likely to continue in the lead-up to election results. Stock market, a week before the results has consistently seen significant movements. In 2004, when the Congress-led UPA won power from the NDA, the Nifty dropped 21.5%. Conversely, in 2009, when Manmohan Singh retained his position, the Nifty surged nearly 22% in the five days before the results. In 2014, ahead of Narendra Modi’s first major election victory, the Nifty rose 5%, and in 2019, it saw a 3.5% increase.
Currently, market sentiment appears to have priced in the expectation of the BJP securing around 300 seats. However, market insiders warn that a result with fewer than 280 seats could unsettle investors. A hung parliament or a BJP defeat could lead to significant market stress.
In a recent interview with a business daily, Prime Minister Narendra Modi expressed confidence that the stock markets will reach record highs on June 4, 2024. He attributed this optimism to his government’s implementation of pro-market reforms, which have fostered a robust and transparent financial ecosystem, making it easier for every Indian to participate in the stock markets. Modi is also confident that the Bharatiya Janata Party (BJP) will secure a record number of Lok Sabha seats on the same day, further boosting market sentiments.
Earlier this month, Home Minister and senior BJP leader Amit Shah, in an earlier TV interview also predicted that the Indian stock market will achieve new records on June 4, coinciding with the announcement of the Lok Sabha election results, which are being conducted in seven phases.
“The br case for the markets which they are building in right now is close to around 300 seats for BJP and around 330-340 for NDA as a whole. Markets will clearly get surprised on the positive side if the numbers are closer to 400 and the chances of that are very slim. In case the BJP gets less than 280, it would be a negative surprise. So, all in all, if the numbers for NDA are between 320 and 330, markets would be neutral,” said Manish Sonthalia, CIO, Emkay Investment Managers told the Economic Times.
According to Bernstein, the Indian stock market could experience a short-term rally if the incumbent government returns to power with 330-350 seats, a scenario with high probability as per Money Control’s report this week. This rally could potentially push the Nifty 50 index past the 23,000 mark. However, Bernstein cautions that this would likely be followed by profit-taking as investors reassess execution realities and valuations.
The report predicts that sectors such as infrastructure, manufacturing, domestic cyclicals, select financials, and state-owned enterprises (PSUs) are expected to outperform. Conversely, consumer and IT sectors are likely to underperform. Small and midcap stocks may temporarily outshine large-cap stocks.
Bernstein emphasizes the significance of the government’s role in managing capital expenditure. The return of the National Democratic Alliance (NDA) would likely ensure steady growth, while a change in government could lead to haphazard growth and a shorter upcycle with structural challenges for sectors linked to capital expenditure.
Meanwhile, the Sensex and Nifty both declined by 0.2 percent and hit their day’s lows around noon on May 28, as volatility increased. Except for Nifty Pharma which was up 0.3 percent, all sectoral indices were in the red.
India VIX, also known as the fear gauge, rose over 5 percent to 24.5. At 12.46 pm, the Sensex was down 82 points or 0.1 percent at 75,308 and the Nifty 50 was down 22 points at 22,909. Oil and gas, and power stocks were the major laggards, dragging the Nifty 50 down.
The broader also witnessed heavy selling pressure with both BSE Midcap and Smallcap falling over 1 percent.
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Lok Sabha elections have made investors richer by Rs 26 lakh crore. What’s next?
