Lok Sabha Elections 2024: Market may see sharp 20% decline if election results deviate from expectations -Experts
Lok Sabha Elections 2024: The benchmark Nifty-50 index crossed 23000 mark and is trading near highs as market participants expect ruling National Democratic alliance led by BJP, retaining power. Nevertheless market may see sharp 20% decline in event of election outcome is not as per expectations.
Lok Sabha Elections 2024- Benchmark Nifty-50 index scaled all time high of 23,007.20 on Friday while Sensex is also trading near its all time highs. The gains are being being fueled by the expectation that ruling Bhartiya Janata Party-led National Democratic Alliance (NDA) is likely to regain power. The strong dividend payout by the Reserve Bank of India also has helped improved sentiments as the fiscal deficit will get reduced, The same can improve confidence of Foreign investors on India as well as provide strength to the Indian Rupee. The GDP growth will be strong and government will have more money to invest on infrastructure and other development schemes.
Nevertheless if election outcome misses expectations and the ruling party stays out of power, failing to form new government, here are possible impacts-
Sharp downside for markets if election results deviate from expectations
In the less probable event that the election results significantly deviate from market expectations, the stock market could witness a substantial 20% decline, said Sunil Damania, Chief Investment Officer, MojoPMS In such a scenario, the market might require up to six months to stabilize and return to pre-election levels, he added.
Deepak Jasani, Head of retail Research at HDFC Securities also agreed that that if election results deviate from expectations and the ruling BJP led National Democratic alliance fails to form government, the markets can see a sharp downside, . The reforms may get a setback and the populist announcements by various political parties may take centerstage hurting market sentiments, said Jasani. There will be uncertainty about new reforms
Bernstein in its India strategy report has highlighted that the role of Government in facilitating orderly capex is high; hence, a return of NDA is favorable for that, while a change will likely deliver haphazard growth with the risk of a shorter upcycle with structural challenges after that for those linked to capex. Conversely, consumption may be more favorable in the case of opposition gaining strength, at least in the near term. The downsides to that will be high inflation and fiscal discipline going off-target.
Return of Populism in case of NDA not forming government
In case the NDA fails to cross 270 seats milestone and BJP gets less than 240 seats, there will be return of Populism as per Bernstein.
There will be drastic effects on infra spending in the near term as per Bernstein. The Funds will be diverted out of infra projects towards other social initiatives. Private sector will be pushed to participate in infra, which will lead to only the most viable projects emerging as others may get shelved
Further Bernstein highlighted that there will be near term decline in business sentiment. Tax breaks and subsidies for poor may be financed by more taxes on corporates or rich. Foreign Direct Investments will fall.
Long term outlook for Market still may remain intact
After the election, market focus will transition to valuations, likely restricting the market's upside potential, highlighted Damania Nonetheless, he added that the data analysis indicates that regardless of which party forms the government, the market is consistently at a higher level than in the previous election. Therefore, Damania believe that emphasizing long-term gains over short-term volatility is of greater importance.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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