Lok Sabha elections 2024: What should stock investors do?

After the first two phases of Lok Sabha elections 2024, the third phase also saw low voter turnout, making stock investors a bit jittery, as the equity market is fully factoring in a third-term for BJP-led NDA, with higher seats than 2019 elections.

"With elections season on, no one wants to place longish bets,” said Prashanth Tapse, Senior VP (Research) at Mehta Equities.

One view is that the definite and smooth victory of the ruling dispensation is a bit uncertain now, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.  

Vijayakumar said the market, which has already discounted a BJP/NDA victory, is a bit unsure. "Perhaps, this can be the reason for the apprehension in the market and the bulls shedding their aggressive stance. In the last one month the VIX has spiked by 46 per cent and is hovering around 16.6 now. This means volatility and uncertainty will continue for some time."

Vijayakumar advised investors to use any market weakness to buy high-quality largecap stocks on dips. "Leading private sector banking names, automobile majors and the leading telecom companies are fundamentally strong and fairly valued," he said.

Wednesday was the second day of fall for Sensex. The 30-pack index fell 45 points to settle at 73,466.39. Nifty settled flat at 22,302.50, recovering its entire day's losses.

Hopes of acceleration in reforms during the first 100 days of the next term are still intact, said Nilesh Shah of Kotak Mahindra AMC, who believes a low voter turnout has not altered market expectations over the continuity of the incumbent government at Centre. 

Equichain Wealth Advisors, a Sebi-registered RIA, said the stock market will be taking cues from political developments. In the case of BJP falling short of the 370-seat mark, market should react negatively, it said in a note this past weekend.

"BJP managing 370 seats by its own and NDA above 400 seats will result into a huge rally. We expect broad market to have swing of 5 per cent to 10 per cent on reaction to results on either side. In next few weeks, we would prefer to keep exposure around 75 per cent to 80 per cent and keep exposure level slightly towards positive bias while keeping cash balance as any major correction due to election result could provide buying opportunity," Equichain Wealth Advisors said.

Multiple opinion polls earlier predicted a return of the BJP-led NDA government with a full majority for an unprecedented third term. If it happens, it should augurs well for sustained economic reforms and continued policy momentum, with a focus on capex, manufacturing, and infrastructure development, said Motilal Oswal Securities. This brokearge expects elevated equity market multiples in such a scenario.

A recent analysis by Prabhudas Lilladher showed that the economy and markets performed well under both NDA and UPA (INDIA) given strong tailwinds of demographics. 

"However, NDA scores in implementing key reforms and its focus on Infra development and inclusive growth across sections and regions. BJP Manifesto is providing more clarity on the economic path with focus on building world class infra and investing in technology transition which is sweeping the universe at the expense of freebies," it said.

Over the last three months, the top-performing sectors have been auto, metals, power and oil and gas, while defensive sectors like IT services, FMCG, banks and consumer durables have lagged behind. 

"A shift in this trend appears improbable in the short term," PL said on April 25. 

Phillip Capital earlier said that if BJP gets the third term, it would be more aggressive in terms of execution and policy development. Among sectors, it is positive on automobiles, cement, metals (pipes), real estate, alternative fuels, financials, pharma (CDMO), FMCG, hotels and aviation sectors.