BJP seat wins, Narendra Modi & stock market: Bernstein sees Nifty at 23K in election rally

Lok Sabha elections 2024:  Batting for Modi 3.0, Bernstein in its latest note said India is moving from the reform cycle to the execution cycle and that a continuity of power -- BJP retaining power, remains a crucial driver for the sustainability of the macrocycle. The ongoing general elections will conclude on June 1 and election results are likely on June 4.  

Bernstein expects a short-term stock market rally either leading into elections or the week after results and a potential breach of 23,000 on Nifty if the Prime Minister Narendra Modi is re-elected. That said, the brokerage sees profit booking thereafter, as the reality of execution and valuations emerge. 

If BJP wins over 290 seats of its own, Bernstein said there will be an immediate market rally followed by short-term profit booking. In such a scenario, it sees high single digit or low double digit returns for Nifty this year. In case, the PM Modi-led BJP wins 260-290 seats, there could be mild profit booking in the stock market in near term. High single digit market returns for this year likely, Bernstein said.

If BJP wins 240-260 seats, there would be moderate to heavy profit booking near term. High single digit market returns for this year are still likely, it said.

Meanwhile, if BJP wins less than 240 seats, there would be a return of populism and heavy profit booking near term. In such a scenario, low or negligible returns for markets this year is likely, Bernstein said.

"In our view, sectors that will lead are Infra, manufacturing, domestic cyclical, a bit of financials, and SOEs in general. Consumer and IT will lag. SMIDs may do better than large caps for a few days," Bernstein said.

Bernstein said the role of government in facilitating orderly capex is high; hence, a return of NDA is favourable for that, while a change will likely deliver haphazard growth with the risk of a shorter upcycle with structural challenges after that for those linked to capex. 

"Conversely, consumption may be more favourable in the case of opposition gaining strength, at least in the near term. The downsides to that will be high inflation and fiscal discipline going off-target," Bernstein said. 

The employment problem is likely to be addressed only over the longer term as the focus remains on manufacturing, but a sudden regime change may address this directly through Govt jobs - while FDI and manufacturing push decelerate, it said.