BJP failing to cross the halfway mark could trigger selloff, say brokerages

However, the most likely outcome is BJP crossing 300 seats, predict brokerages

Brokerages believe the markets could see a sharp selloff if the Bharatiya Janata Party (BJP) fails to cross the halfway mark of 272 seats in the ongoing Lok Sabha elections, the results of which will be declared on Tuesday.

However, most brokerages expect Prime Minister (PM) Narendra Modi-led BJP to cross the 300-seat mark, with the coalition National Democratic Alliance (NDA) projected to win between 330 and 340 seats.

“If the BJP does not secure a majority but the NDA forms a government under the leadership of Modi as PM, this might lead to a sharp selloff in equities. Assuming a stable alliance for the next five years under Modi’s leadership, we would recommend buying equities on a steep correction. We do not see any chance of a non-NDA government coming to power,” said PhillipCapital in a note on Tuesday.

 

The benchmark National Stock Exchange Nifty 50 has rallied 4.6 per cent from its March lows. Meanwhile, the Nifty Midcap 100 and the Nifty Smallcap 100 indices have surged 15 per cent and 20 per cent from their respective 2024 lows in March.

Experts believe the market at current levels is pricing in a win for the BJP.

“The market is currently pricing in a comfortable BJP majority. There are two critical numbers we are monitoring. If the BJP secures more than 303 seats — the number they won in 2019 — it would indicate increasing national penetration for the party, likely accompanied by strong performance in the South and East. This would set the BJP up for a stable five-year term, allowing them to advance their economic agenda, and would be a modest positive trigger for the equity market,” Mukul Kochhar, head of institutional equities at Investec India, told Business Standard in an interview

The second critical number, he said, “is the absolute majority figure of 272. While any figure above 272 would provide the BJP with a stable platform for the next five years, a number below 303 would suggest the BJP has possibly peaked. This might lead to introspection within the party, potentially hindering its economic agenda. Such an outcome could disappoint the market. An even bigger disappointment would be a coalition government with no single party holding a majority. However, this scenario appears unlikely”.

In a note last week, Bernstein outlined election scenarios and how the markets could react.

The foreign brokerage said that the NDA securing less than 270 seats could trigger “heavy profit booking in the near term and low or negligible returns for markets in 2024”.

It said BJP winning more than 290 seats will lead to an “immediate market rally followed by short-term profit booking”. This outcome will lead to high-single-digit or low-double-digit returns for the Nifty this year.

The Nifty 50 last closed at 22,705. The index is up 4.5 per cent so far in calendar year 2024.