A worker repairs flags of the ruling Bharatiya Janata Party displayed on a hoarding in Raipur on April 15, 2024, ahead of the country’s upcoming general elections.
Idrée Mohammed | Afp | Getty Images
Indian stock markets started the year at record highs, largely buoyed by pre-election optimism – but as the country entered its weeks-long election, Bernstein warned that a market correction could be in place.
Market players are counting on a victory for the Bharatiya Janata Party, the ruling party of Prime Minister Narendra Modi.
Modi, prime minister since 2014, is seen as a market-friendly candidate. Under his leadership, India became the world’s fifth largest economy with a GDP of $3.7 trillion and now aims to become the world’s third largest economy by 2027.
The reference of India Nifty 50 Index has risen 3% so far this year after gaining more than 20% in 2023, its eighth straight year of gains.
However, the index fell about 1.7% from its recent record close on April 11, due to geopolitical concerns, such as escalating tensions in the Middle East that have roiled global markets.
“A pre-election euphoria is developing, where previously established expectations of continuity of power are further reinforced by the ruling party coalition that could win more than 400 seats,” said Bernstein analysts Venugopal Garre and Nikhil Arela, in a customer note.
India’s 2024 general election began on Friday as voters go to the polls in the world’s largest democratic election to decide whether Modi will secure a third term..
Nearly a billion eligible voters will decide who fills the 543 contested seats in the Lok Sabha, the lower house of India’s Parliament. The party or coalition that wins at least 272 votes will form the government.
A correction may be “inevitable”
Due to “extremely high expectations” of a strong mandate for the BJP and its coalition, “even repeating the historic performance of 2019 may not be enough this time”, analysts said.
The markets have already anticipated a number close to 350, or almost 400 for the NDA coalition, according to their analysis.
If the BJP gets more than 300 seats and the broader NDA coalition gets more than 350, “a correction is inevitable, and markets simply looking for a reason to fall could overreact to sentiment that might not not mean much in a rational way.
The brokerage firm argued that with 300 seats or more, the ruling party would continue to hold an absolute majority in the lower house and there would be continuity of power.
“Nevertheless, this result will be considered ‘below consensus,’ and a backlash cannot be denied,” the analysts said. “This could possibly mark the end of the current year-long market frenzy.”
cnbc
