Sensex tanks 4,389 pts: Markets to derate; should long-term investors buy?

Indian stock markets crash: The Indian stock markets tanked on Tuesday, June 4, following the BJP-led NDA's underwhelming performance in the 2024 Lok Sabha elections, falling short of market expectations.

By 3:50 PM, the NDA was leading on 296 seats, with the INDIA Alliance ahead on 230 seats, while other parties were leading on 17 seats.

The ruling NDA, said analysts at Emkay Global in a note, is set to return with a thinner majority than in 2019, belying exit poll forecasts of a vastly-improved majority. Current trends, they said, indicate the NDA could end up with approximately 290-300 seats, comfortably ahead of the 272 majority mark. The bigger surprise, however, is that the BJP, on its own, is set to miss the majority mark by a wide margin, with around 230-240 seats.

"It is likely that Narendra Modi will return as PM for a third term. However, he will have to contend with changed circumstances,” the Emkay note said.

The S&P BSE Sensex index plunged over 6,200 points intraday, before settling 4,390 points, or 5.74 per cent, lower at 72,079 levels, on Tuesday.

While Nifty50 broke the 22,000-mark to hit an intraday low of 21,281. However, the index settled at 21,885, down 1,379 points or 5.93 per cent.

According to the exit polls, the National Democratic Alliance (NDA) was projected to secure around 370 seats, with News24 - Today's Chanakya, and India Today - Axis MY India Exit Poll leading with estimates of 400 seats.

The outcome of the Lok Sabha elections 2024, Emkay said, is unlikely to shake the pillars of India's economic momentum. The focus on manufacturing, they said, will continue, especially given its importance in job creation.

"There may be a subtle shift back towards consumption stimulus, but we think it would not be material. State budget deficits may worsen, but we see little risk to the consolidation of the Central fiscal deficit. The capex cycle may also slow down as the government pivots (slightly) to revex spending, and corporates may get into a wait-and-watch mode for a few quarters. Finally, we think the unprecedented macro-financial stability will persist, with little risk of a collapse of the twin deficits or bank/corporate balance sheets," the note said.

So, is the market fall on June 4 an opportunity for long-term investors?

According to Chokkalingam G, founder and head of research at Equinomics Research, long-term investors should wait for a couple of days before making any investment decision.

“Valuations are still expensive but investors must see this correction as an opportunity to buy quality stocks. Investors may adopt a bottom-up approach while investing," he said. IT and private banks, he added, look attractive at current levels.

Ashwin Patil, research analyst at LKP Securities, too, believes investors may look for cover under large-caps.

"Some sectors are always good irrespective of election outcome. Power, metals, autos, and PSUs are looking good and investors could add such stocks to their portfolio," he suggested.

Market derating

That said, a section of analysts expect markets to de-rating further in the short term as political risks in India have gone up.

“The Nifty50 index trades at ~19.5x PER, and we think the correction isn't deep enough yet. At current levels, we are 'Neutral' but would not add to positions. If the Nifty does correct another 10 per cent to below 20,000, we see the market being attractively valued at less than 18x PER, and see an entry opportunity back into Indian equities,” said a note by Emkay Global.

PSUs and Capital goods, according to the brokerage, remain the most vulnerable sector. On the other hand, consumption, and FMCG may make strong returns, it said.