Indian stocks are squeezed into the grip of bears with Sensex and Nifty 50 toppling by nearly a per cent on May 29. It's a bloodbath and banking stocks are leading the steep downfall as BSE Bankex and Nifty Bank tumbled between 1-1.5%. One of the major reasons behind investors' frenzy profit booking can be attributed to the uncertainty revolving around the Lok Sabha Election outcomes. But despite all the chaos and panic, Nifty 50, the mainboard of NSE is set to touch 26,500 levels in less than 2 years.
Latest Uncertainty In Market:
A saffron party win is expected to give the much-needed bullish push, but that sliver chance of its opposition party Congress grabbing better momentum than the previous election in 2019 is something that will act as a spoilsport. In simple words, it's not the question of who will win, the conundrum is of who will win with how many seats.
Let's get into the details! As per the latest report of global brokerage UBS, political alliances have historically played a critical role in the country's election.
What has worried experts and investors is PM Modi-led government's dominance as a single party that has seen a slippery slope in the last two general elections.
For instance, in 2019, the BJP party secured 37.36% of the nationwide vote share and won 303 seats, the highest win by any political party since the 1989 election, while its ring-wing party NDA won 353 seats accounting for 45% of the 603.7 million votes the were polled in that election. This was compared far better compared to 31% of the vote won with 282 seats in 2014 and that of its NDA party bagged a total of 336 seats.
Initially, the expectation was that the 2024 election would be yet another big bang by the BJP party with seats crossing over the 400 mark, however, this optimism has dulled down. Nonetheless, the consensus of the majority is that the BJP will win, the key factor is how much!
Brokerage UBS breaks down four scenarios revolving around the BJP party's win and its impact on the stock market.
Taking into consideration the opinion poll, UBS believes if BJP wins the election while retaining the single-party majority, this election outcome is likely to lift market confidence with policy continuity and further growth reforms. Hence, a majority win as a single party is positive for the market.
Secondly, if the BJP fails to maintain its single-party majority with NDA holding a majority (> 272 seats), as per UBS, this could lead to dampening the market's confidence as policy stability and fiscal consolidation could be slower than expected.
The third case scenario which UBS predicts as per polls is that the NDA fails to secure a majority, which may impact financial markets negatively. This is because there could be a possibility of a less decisive government could lead to lags in implementing reforms.
The last but not the least outcome could be the newly formed coalition INDIA securing over 272 seats, a majority, and that as per UBS could bring significant market uncertainty and potential abrupt policy changes. Hence, a steep knee-jerk reaction could be expected from the market if this is the outcome.
Also, Antique Stock Broking pointed out that The current debate is on the prospects of the incumbent government (polling is complete in ~70% of the Lok Sabha seats) as there has been a decline in voter turnout (from 68.6% in 2019 to 66.5% in 2024, a decline in 252 seats out of 365). Based on our analysis of voter turnout data, we believe that the incumbent party may improve its 2019 tally but fall short of the opinion poll expectation of NDA winning 370-410 seats."
Key findings of Antique's analysis are that --- a) First-time optional postal ballot facility to voters aged 85+ and the disabled may lead to an upward revision in voter turnout; b) A repeat of the 2004 trend of poor voter turnout resulting in loss of seats for the BJP is unwarranted as there is a significant expansion of its voter base (especially among lower-income households); c) Lopsided elections (as seen recently in Gujarat & Punjab assembly polls) does lead to drop in voter turnout; and d) Analysis of voter turnout mapped against the winning margin suggest that BJP is better placed.
Nonetheless, UBS also expects a BJP win and is optimistic about India's long-term economic growth prospects.
As per UBS, the opinion polls show the newly formed coalition, INDIA, may struggle to gain voter share as BJP's dominance seems to be continuing in the 2024 elections as well.
On the latest volatility, Home Minister Amit Shah in an interview with NDTV on Wednesday said that a drop of 300-400 points after a rise of 1,200-1,300 points is a normal occurrence and happens 15-20 times a year, even without elections. Hence, he said that the latest volatility of the stock market should not be attributed entirely to the ongoing election, as it is a normal phenomenon.
Earlier, PM Modi in another interview, predicted that the Indian market may rise to record-high levels once the BJP secures a substantial victory on June 4.
His prediction may become reality as experts believe that Nifty could touch 24,500 by 2024-end and cross over the 26,000 mark in 2025.! Currently, Nifty's historic high is at 23,110.80.
Where is the market headed?
Emkay Investment Managers (EIML), the portfolio management services arm of Emkay Global Financial Services, in its report, said that "with an expected earnings growth of 15%,.." it.." expects Indian Nifty to reach 24,500 by December 2024."
In the long term, Emkay's experts believe Nifty has the potential to hit 26,500 by December 2025-end.
Emkay's note said, "Indian Nifty is expected to further scale in upward mobility to surpass the level of 26,500 by December 2025."
In the immediate near term, as per Emkay, markets are going to focus on election results. An expected return of the NDA regime with a base case scenario of 330 seats will result in policy continuity along with major reforms on land, labour, and judiciary will support positive sentiment in the Indian markets.
Over the long term, the brokerage believes geopolitical developments and elections in the US and UK will be watched out for with Fed rate cuts in 3rd or 4th quarter of FY25.
On May 29, Nifty traded in the range of 22,825.50 and 22,705.45 respectively. The benchmark dipped by almost 1%. Despite the latest fall, the Nifty 50 has performed on a bullish note in 2024 so far.
Year-to-date, Nifty has rallied by 947.30 points or 4.4%. This is despite FIIs emerging as net sellers in the domestic equities.
What can be the ideal investment strategy?
EIML advises having a multi-cap approach with equal propositions in large-caps and mid-caps to take advantage of broad-based growth in Indian equity markets. Most delta in the medium term is expected to come from the broader markets.
Manish Sonthalia, Chief Investment Officer, Emkay Investment Managers Ltd. said, "BFSI, PSUs, and industrials are expected to do well. BFSI has led the earnings growth and seen a correction in valuation. Investment-related themes will come into play with power capex building up in the next 3 to 5 years. We are re-rating public sector units as some of the government entities will have an advantage in sectors such as defence, oil marketing companies and power financers. After being in a slump post-COVID, pharmaceuticals are expected to see a turnaround. We are witnessing K-shaped recovery in the premier end of consumer discretionary, with entry-level segment still not doing well."
Apart from this, EIML further corroborated the narrative of India's golden decade of growth which is currently staged at an inflection point to advance to USD 8 trillion economy. Themes to watch out for:
Consumption: Per capita income moving up to USD 4500 by 2029 will translate into higher consumption of discretionary items.
Manufacturing: China +1 and Europe +1 are likely to benefit from speciality chemicals, pharmaceuticals, automobiles and electronic manufacturing services.
Green energy: Solar and wind are expected to mainstream of energy transition in India. The value chain on the power side is expected to benefit in a big way.
Digitization & AI: India will be at the forefront of innovation in technology.
Financialization of savings: Moving away from investments in fixed income to equity will benefit investment platform providers.
Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns. in advises users to consult with certified experts before making any investment decision.
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