NEW DELHI: The outcome of elections held in four states is expected to give a major impetus to the stock market in the coming week even as local benchmark indexes- BSE Sensex and NSE Nifty50 - gained over 2% each last week.
As per the last update, the election commission trends showed the PM Narendra Modi-led Bharatiya Janata Party (BJP) winning in Madhya Pradesh, Rajasthan and Chhattisgarh while in Telangana, the Congress is leading over Chief Minister K Chandrasekhar Rao’s BRS.
Sunil Nyati, Managing Director of Swastika Investmart said that the Indian stock market has started factoring in an edge to the BJP in state elections, but 3-1 was not discounted; therefore, the market is likely to celebrate with big gains. The market has already started the pre-election rally for May 2024 from mid-November, and now this rally will get pace after the outcome of state elections, she said.
“Now two factors will play out FOMO and TINA. The feeling of missing out (FOMO) and the fact that there is no alternative (TINA). FIIs are still on the sidelines, and now they have FOMO feelings. After the state election outcome and surprising strong GDP numbers, it is clear that there is no alternative to India in terms of political stability and economic growth. Now these two factors have created a canvas for a pre-election rally,” said Nyati.
“There is a good chance that Nifty may hit the auspicious mark of 21,000 in December itself, while another 1000–2000 point rally can’t be ruled out in the run-up to the general election,” added Nyati.
The Nifty 50, on Friday, hit its fresh record high of 20,291.55 in the intraday session on all-round buying after India’s Q2 GDP numbers exceeded expectations. The Sensex ended the Friday session at 67,481.19, up 493 points. The 30- share index remained 446 points away from its all-time high of 67,927.23 which it hit on September 15 this year.
Anirudh Garg, Partner and Head of Research at Invasset PMS said that the SENSEX performance data around Indian general elections points to a clear correlation between investor sentiment and the anticipation of stable governance. Before elections, there is often a surge in the market; for instance, SENSEX rose by 18.2% before the first Modi government and an impressive 29.7% before the UPA-2 tenure. This pre-election rally reflects investor confidence in prospective political stability.
“Post-election, the market’s response is more nuanced. Short-term gains, such as a 3.99% increase after the Modi Government 2.0 results, suggest cautious optimism. Yet, the long-term outlook is robust, demonstrated by significant one-year returns, peaking after UPA-2 with an 81.5% increase, indicating sustained market confidence in a stable government’s policies,” said Garg.
Sonam Srivastava, Founder and Fund Manager at Wright Research, PMS, said that election outcomes impact the market through various channels: changes in economic policies (like taxation, tariffs, regulations) under new governments can affect corporate profits, influencing stock prices.
“Political stability is crucial; a stable government boosts investor confidence, whereas a weak or unstable government heightens political uncertainty, making investors risk-averse,” added Srivastava. Sreeram Ramdas, VP at Green Portfolio, however, feels that the results from these five states aren’t pivotal. The markets are not expected to experience a dramatic sentimental shift next week due to these results.