'Markets have topped for now; next few months could be buying opportunity'

Stock market strategy after Lok Sabha election results: The BJP may end up focusing more on the coalition partners than concentrating on economic growth.

Lok Sabha election results 2024: Election season started with a rhetoric of over 400 seats, which gave the markets the initial push toward new highs. When guesstimates circulated in the markets, putting the tally at around 320-330 for the NDA, the markets saw corrections.

This again was a good number but as the Street believed, the National Democratic Alliance (NDA) needed an overwhelming majority to push through structural changes to achieve the goal of 'Viksit Bharat' or a Developed Nation by 2047.

The exit polls, on Saturday, ignited the hope that NDA would garner an overwhelming majority as the lower end of the estimates put NDA at 350+ seats. The markets witnessed a super rally with the Nifty hitting an all-time high of 23,338 on June 03, indicating a strong government with continued focus on growth which would aid sectors like infrastructure, railways and defence.

 

The run up was also aided by huge short covering as the nay-sayers, especially the FIIs, had to close their short positions.

However, today’s initial election results trend debunked all the exit poll data and market-men seem to have been caught on the wrong foot. At some point, there was a discussion whether the NDA would be able to form the government or not? There were rumors whether Prime Minister Narendra Modi would continue to lead even if NDA were to form the government.

Based on this, markets touched a low of 21,281, close to a 9.30 per cent fall intraday. However, as it became clear that the NDA would be able to form the government, the markets recovered from the lower levels, but the sentiment was already battered.

Compared to the two earlier terms of the NDA, this could be their weakest coalition. This would mean the BJP may end up focusing more on the coalition partners than concentrating on economic growth.

Having had a free hand in the last two terms, we need to see how Prime Minister Modi is able to tackle the new situation. Will the government reverse it's stand on appeasement which again will weigh on the fiscal situation, which is under control, especially after the recent RBI dividend.

The investing community would have a lot of unanswered questions which will keep them away from investing afresh for a while as they would continue to stare at huge losses in their portfolios.

Hopefully, as the clouds start to clear over the next few weeks or months, normalcy should return. For the time being, I believe we have seen the top, and the markets could drift going ahead. The only near term upside could come during the Government formation and possibly an uptick in the run up to the Budget. However, the next few months could give a buying opportunity to long term investors.

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Disclaimer: Ambareesh Baliga is an independent market analyst. Views expressed are personal.