Sky-high expectations from BJP may trigger profit booking in stock market post elections, says Bernstein

Bernstein in its latest noted said that despite the opinion poll data making the 390-400 target look almost certain for incumbent BJP, it believes the gain of seats for the PM Narendra Modi-led party in low penetration states may not significantly exceed the loss in others. The chances of a minor gain look high, Bernstein said adding that there are low  probabilities of deviating significantly above and below its 2019 tally of 350.

Bernstein said with sky- high expectations having set in, a number near to the 2019 value might trigger a short-term negative reaction. "We believe a profit-booking post-elections is coming anyway, and the election results will only serve as a trigger point for the inevitable," it said.  

Eventually, Bernstein said, the macro story will take over, and as it stays healthy, we expect modest downsides.

Bernstein said the year 2024 with Indian markets  at record valuations, particularly in the small and mid cap spaces.

A pre-election euphoria is building up, where the previously set expectations of continuity of power are further augmented by the ruling party coalition possibly winning over 400 seats, it said.

This is something started by the incumbent party and is being legitimised through opinion polls of TV media, which are giving the NDA coalition as many as 411 seats, it argued.

"The NDA got 350 seats in the last election, so where are the additional 50 seats coming from? The most obvious answer is the southern belt, where it won merely 5 out of 101 seats in 2019. But even that isn’t a cakewalk. The inroads in Kerala, though historic, will likely be limited to 1-2 seats. Even Tamil Nadu isn’t expected to be much fruitful," Bernstein said.

Besides, it felt that gains must come from AP, Telangana, West Bengal and Odisha. "Many of these will see closely fought contests with seats swinging wildly," it said.

With so much to lose and almost nothing to gain, execution of ‘Plan 400’ will be far more challenging than setting targets, Bernstein said.