India: Pollsters and political analysts are divided on the potential outcome of the election, with lower voter turnout and apathy posing risks for Prime Minister Narendra Modi’s government and his Bharatiya Janata Party (BJP).
The six-week-long national election is in its final phase, with voting concluding on Saturday, and financial markets eagerly await the verdict after counting scheduled for June 4. At the last election in 2019, the BJP and its allies secured 352 of the 543 seats in Lok Sabha, with the BJP alone winning 303 seats.
Although no exit polls are permitted before this year’s voting ends, early April opinion polls suggested that the BJP was likely to dominate the election. The shadow betting market, closely tracked by traders, predicts that the BJP will secure close to 300 seats this time, similar to its 2019 performance.
Leading up to the 2024 verdict, fund managers, analysts, and economists anticipate various market reactions under different scenarios:
- BJP Strengthens Its Position: If the BJP secures a stronger majority than in 2019, equity markets are expected to rally in anticipation of growth-supportive economic policies, such as increased spending on infrastructure and a boost for the manufacturing sector. Rajesh Bhatia, Chief Investment Officer of ITI Mutual Fund, suggests that benchmark indices S&P Sensex and NSE Nifty 50 could rally by 4-5% in this scenario. Additionally, the rupee could appreciate to around 82.80 levels against the dollar, while the benchmark bond yield may dip to 6.90%-6.92% from near 7%, according to VRC Reddy, Treasury Head at Karur Vysya Bank. James Thom, Senior Investment Director of Asian Equities at abrdn, views Prime Minister Modi’s return as a positive signal for the market due to its demonstration of political stability and implied policy continuity.
- Minority but Governing Majority: If the BJP and its allies win fewer seats than in 2019 but still maintain a majority above the 272 seats required to form a government, markets may experience short-term volatility but are expected to settle quickly. Gaurav Dua, Head of Capital Market Strategy at Sharekhan, suggests that the market has already factored in the possibility of a lower margin of victory for the BJP and its allies, thus indicating minimal alteration in market trajectory if the seat count falls below 300.
- Surprise BJP Loss and Coalition Government: In the event of a surprise BJP loss and the formation of a coalition government led by Congress, markets could witness a sell-off until the new government’s policies become clear. Mittul Kalawadia, Senior Fund Manager, Equity, ICICI Prudential Mutual Fund, notes that the market hopes for continuity, making any change impacting policy-level continuity a significant short-term negative. Abhishek Goenka of IFA Global anticipates a potential immediate 10% fall in benchmark stock market indices, while Gaurav Dua suggests the decline could be as substantial as 15-20%. In response to this scenario, the central bank may intervene to stabilize the rupee, according to Anindya Banerjee, Head of Foreign Exchange Research at Kotak Securities.
