Dalal Street in a tense huddle as NDA coalition takes charge under Narendra Modi

D-Street witnessed a roller-coaster ride on June 3 and 4. First, the markets tasted a huge high after exit polls predicted a decisive majority for the Bharatiya Janata Party (BJP) and its coalition, the National Democratic Alliance (NDA), in the General Elections. Then it came crashing down after the BJP fell short of a majority of 272 seats in the 543-member House, though the NDA made it past the halfway mark, winning nearly 300 seats.

As a result, the Street has turned cautious, and analysts believe the government could reassess some of its priorities.

On June 4, the market capitalisation of BSE-listed companies plunged `31 lakh crore as the Opposition Indian National Developmental Inclusive Alliance (INDIA) put up a better fight than projected.

Meanwhile, the benchmark BSE Sensex crashed 4,389 points, or 5.74%, to 72,079, witnessing its biggest single-day fall since March 23, 2020, when the index lost more than 13% after the outbreak of the Covid-19 pandemic. Likewise, the NSE Nifty index plummeted 1,379.40 points, or 5.93%, to 21,884.50. Both the indices recovered more than 3% on June 5.

“There is no need to panic in this market. The NDA is coming to power. The fundamentals and structure of the market are intact. We may see 5-8% upside in the market in the coming sessions,” says Ravi Singh, Senior Vice President of Retail Research at Religare Broking. He adds that bank, energy, auto, PSU, defence, and railway stocks will also recover. “The Nifty may touch the 23,800–24,000 mark by December, and the Sensex will be around 85,000.”

Atul Suri, CEO of asset manager Marathon Trends, says there is potential for realignment of the government’s priorities, and sectors like FMCG could benefit from rural development initiatives. “One of the regions where BJP lost was where we saw farmers’ protests. There is a sense that the party will address this issue. That would lead to a monetary push into those areas. This will lead to… revival in the FMCG space.”

Suri maintains a bullish view on the capital goods, infrastructure, and engineering sectors. “With India’s need for development, these sectors stand to benefit from government investment,” he adds.

With a return of nearly 70%, the BSE FMCG index has underperformed the 30-share Sensex (up 86%) in the five years to May 30, 2024. On the other hand, the BSE Healthcare index gained 162% during the same period.

Foreign institutional investors sold a record `12,436 crore worth of shares on June 4, per NSE data. Punita Kumar Sinha, Founding Partner at financial planning services firm Pacific Paradigm Advisors, says the NDA government could be less bold in terms of reforms. “Foreign investors have no reason to rush into India because there are many other markets that they can invest in with better valuations. They want the dust to settle before rushing in,” says Sinha. She believes both the Indian growth story and demand are intact. “The consumer effect, financialisation, digitalisation, and other strong trends are now in place regardless of any government intervention. These will propel the Indian economy,” she adds.

With elections around the corner in several major economies, including the US, market participants will keep an eye out on the US Federal Reserve and other central banks. According to brokerage firm Prabhudas Lilladher, incremental re-rating of PSU, capital goods, infrastructure, defence, and railway stocks looks unlikely given the stretched valuations until there is policy clarity. It believes that with the expected focus on rural India and normal monsoons, sectors like auto, pharmaceuticals, private banks, and consumer durables might come into focus.

In general, elections in the past have always led to sharp movements after the results, but history has shown that the markets stabilise one to six months after the outcome. Since 1999, the domestic equity markets have always delivered positive returns six months after the election results. Data available with Abakkus Asset Manager LLP shows that the NSE Nifty index delivered a 4% return to investors in the six months after the election results in October 1999. Likewise, the index advanced 9% after results in May 2004, 38% in 2009, 16% in 2014, and 2% in 2019.

Global wealth management firm Bernstein Research believes that continuity is a powerful enough narrative to support the economy. It is of the view that some focus on subsidies at the expense of capex is likely. “We do not see a material impact in the near term and maintained the Nifty target for December 2024 unchanged at 23,500. We see volatility as a feature given uncertainty on the policy path,” it says in a report.