Considering April 19’s low of 71,816.46, when voting for the first phase of Lok Sabha elections began, and Monday’s closing of 75,390, Sensex is up over 3,570 points. In the meantime, the combined market capitalisation of all BSE-listed stocks has also gone up by Rs 26.36 lakh crore to Rs 419.95 lakh crore on Monday.
Historical trends suggest that sharp movements may not stop here. In all the last 4 elections, the week preceding the results has been hectic. In 2004, when a Congress-led UPA government snatched power from NDA, Nifty had fallen 21.5% in the pre-result week. In 2009 elections, when Manmohan Singh retained the crown, Nifty had zoomed nearly 22% in 5 days before the D-Day.
In 2014, Nifty had rallied 5% in the pre-result week when Narendra Modi had won Lok Sabha elections for the first time with a thumping majority. The 2019 elections also saw a 3.5% rise in Nifty.
Also read | If BJP loses power Nifty valuations can crash to pre-NDA levels, warns UBS
This time, Dalal Street appears to have already baked in the possibility of BJP getting around 300 seats but anything less than 280 may create trouble for bulls, according to market insiders.
“The base case for the markets which they are building in right now is close to around 300 seats for BJP and around 330-340 for NDA as a whole. Markets will clearly get surprised on the positive side if the numbers are closer to 400 and the chances of that are very slim. In case the BJP gets less than 280, it would be a negative surprise. So, all in all, if the numbers for NDA are between 320 and 330, markets would be neutral,” said Manish Sonthalia, CIO, Emkay Investment Managers.
JM Financial sees an incremental net loss of 4 seats to 299 for BJP in the base case scenario while the bear case and bull case seat tally is in a narrow range of 290 to 310.
“We do not find a clear trend in the relation between voter turnouts and results in the past. Based on our analysis of volatility index VIX during past elections, we believe that VIX has peaked in this cycle,” JM Financial said, adding that it expects healthy gains to follow election results on 4th June. It has also told investors to buy any dips.
However, both a hung parliament and BJP’s loss could be stressful. UBS has said a hung parliament would lead to higher market uncertainty with a downward bias while INDIA alliance victory may result in de-rating of multiples to near pre-NDA levels.
Bernstein sees a higher probability of BJP winning around 330-350 seats which can lead to high single digit or low double digit returns for Nifty this year.
If BJP gets 240 seats, heavy profit booking may happen in the near term with the market giving low or negligible returns this year, shows calculations done by the brokerage.
Dalal Street veteran Sanjiv Bhasin doesn’t see runaway rallies or runaway falls. “Indian markets have become mature and the retail investor is showing signs of maturity. So any exuberance or despair is going to be short-lived,” Bhasin said.
Also read | Nifty can give double-digit returns in 2024 if BJP gets 290 plus seats: Bernstein
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)