Market volatility peaks despite hope in Modi’s win

The volatility index, India VIX, rose over 5% intraday on Tuesday to hit a fresh two-year high of 24.48.
The index, which measures the market’s expectation of volatility in the next 30 days, has been going up since the 2024 Lok Sabha elections took off last month.
The index, which measures the market’s expectation of volatility in the next 30 days, has been going up since the 2024 Lok Sabha elections took off last month.Photo | ANI

NEW DELHI: Despite increased volatility in the stock market over concerns related to the general election outcome that is due on June 4, most brokerages continue to view that Prime Minister Narendra Modi-led National Democratic Alliance (NDA) will comfortably form the central government for the third straight time.

“Amid concerns over policy continuity, we expect the BJP to comfortably retain its majority in the ongoing Lok Sabha general elections…Based on our assessment of major states on a pan-India basis, we see a net incremental loss of 4 seats to 299 for BJP in our base case, while our bear and bull case seat tally is in a narrow range of 290 to 310,” said analysts at JM Financials on Tuesday.

The volatility index, India VIX, rose over 5% intraday on Tuesday to hit a fresh two-year high of 24.48. The index, which measures the market’s expectation of volatility in the next 30 days, has been going up since the 2024 Lok Sabha elections took off last month.

In one month, it has surged 124% as lower voter turnout in six phases completed so far has raised questions about whether the ruling party would win a strong margin, which is necessary for the continuity of market-friendly policies.

“As the market approaches the election outcome, the uncertainty-led volatility is likely to continue. However, the underlying earnings growth for the March quarter results so far was largely above expectations, which could support the valuation, currently moderately above the long-term average,” said Vinod Nair, head of research at Geojit Financial Services.

Emkay Investment Managers (EIM) on Tuesday said that an expected return of the NDA regime with a base case scenario of 330 seats will result in policy continuity along with major reforms on land, labour, and judiciary will support positive sentiment in the Indian markets.

Manish Sonthalia, Chief Investment Officer of EIM, said, “BFSI, PSUs, and industrials are expected to do well. BFSI has led earnings growth and seen a correction in valuation. Investment-related themes will come into play with power capex building up in the next 3 to 5 years.”

The benchmark Sensex closed the Tuesday session at 75,171, a decline of 220 points, while the Nifty50 index ended the session at 22,888, a drop of 44 points. Besides elections, the Indian markets have been jittery due to continuous selling by foreign portfolio investors (FPIs).

Global brokerage UBS has highlighted four scenarios of the election outcome and said that the INDIA alliance coming to power is a big negative for equities. It added that stock market valuations may get derated in this scenario and a test of pre-NDA valuation multiples is likely.

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