How Will Nifty 50 React to India’s 2024 Election Results?

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How Will Nifty 50 React to India’s 2024 Election Results?

As India gears up for its mammoth elections, the political panorama undergoes a seismic shift. Nifty 50 will remain on the radar of all market participants from here on as the first phase of voting commences from today, till the results are out.

From Bernstein’s viewpoint, the elections are expected to be rather subdued, with continuity of power anticipated. Yet, amidst the prevailing optimism, can the markets remain impervious to potential outcomes? Let's delve into the prospect of lower-than-expected seat gains and their repercussions.

With forecasts scaling new heights, the incumbent government's juggernaut seems unstoppable, with estimates hovering around 385-390 seats for the NDA coalition. Some polls even project a staggering 411 seats, elevating the bar of expectations.

There’s no doubt that the benchmark Nifty 50 index has almost discounted the NDA’s victory in the upcoming 2024 Lok Sabha elections by scaling to new all-time highs this month. The geopolitical tensions between Israel, Iran, the US, etc. have resulted in a 1,000-point drop since the highs were marked.

However, it should also be noted that even if the expectations are met and NDA comes to power, the majority with which it happens will also be on the radar. Consequently, the reactions can materialize post-elections.

Also, riding the expectations, Nifty 50 could make its way to 23,000 before the elections and if that happens, a good profit-booking could kick in leading to a drag on the index. However, long-term investors can take it as a buying opportunity as the next 5 years under the NDA government will likely help more or less replicate the sharp growth India has seen in the last few years.

Amidst the cacophony of election fervor, ground realities in several states paint a more nuanced picture. States like Gujarat, Rajasthan, Punjab, and Haryana grapple with socio-political unrest, posing hurdles to the anticipated electoral sweep. Notably, eight crucial states, including the aforementioned, yielded a staggering 99% of seats for the NDA in 2019, making further gains an arduous task.

In case the NDA could not form the government this time, investors can witness a sharp crash, probably breaching the 21,000 mark.

The pursuit of 'Plan 400' faces formidable challenges, especially in uncharted territories like the southern belt, where the NDA clinched a mere five seats in 2019. However, inroads into states like Andhra Pradesh, Telangana, West Bengal, and Odisha remain pivotal, albeit fiercely contested.

Despite opinion polls tilting towards the 390-400 seat mark, the likelihood of significant gains in low-penetration states offsetting losses elsewhere remains uncertain. While a modest uptick is plausible, heightened expectations may trigger short-term volatility. However, macroeconomic fundamentals are poised to steer the market towards modest corrections post-elections.

As India braces for its pivotal elections, the Nifty 50 index remains a focal point, reflecting market sentiment amid expectations of continuity for the incumbent government. Bernstein anticipates subdued outcomes, with forecasts suggesting a strong victory for the NDA coalition. While the Nifty 50 has surged to record highs, geopolitical tensions have induced volatility, potentially leading to profit-booking before the elections, especially if it reaches the 23,000 mark.

However, challenges in key states like Gujarat and Rajasthan persist, and uncertainties loom over the NDA's prospects in the southern belt. Any deviation from expectations post-election could trigger significant market movements, with the Nifty 50 potentially dipping below 21,000 if the NDA fails to secure victory.

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X (formerly, Twitter) - Aayush Khanna

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