The Indian stock market is poised to experience profit-booking following the Lok Sabha elections, with the results acting as the catalyst, according to brokerage firm Bernstein. The firm anticipates a surge in pre-election enthusiasm, where the existing expectations of a seamless transition of power are further reinforced by the ruling party coalition potentially securing over 400 seats. Bernstein analysts Venugopal Garre and Nikhil Arela stated, “With exceedingly high expectations already in place, a figure close to the 2019 value could prompt a short-term adverse reaction.
Nonetheless, we foresee profit-booking post-elections as an inevitable outcome, with the election results merely serving as a trigger point for the impending adjustment.” Over time, the broader macroeconomic narrative is expected to take precedence, and as long as it remains robust, the analysts predict modest declines. They believe that the manufacturing and capital expenditure narratives will continue to be significant themes regardless of the number of seats won.
The brokerage firm highlighted that certain polls are projecting as many as 411 seats for the ruling National Democratic Alliance (NDA), and with the recent performance in state elections and the outcomes of nearly all major opinion polls, 390-400 seats have become the new baseline scenario.
“A market correction is unavoidable, and investors who are simply waiting for a reason to sell may overreact to a sentiment that may not hold much rational significance. At face value, 300 seats would still signify an absolute majority for the ruling party, resembling the scenario in 2019, which essentially signifies both a continuation of power and its extent. Nevertheless, it may be perceived as a result below consensus, leading to a reaction that cannot be discounted,” the analysts remarked. This could potentially mark the beginning of the end of the ongoing market exuberance, which has persisted for a full year, they added. The domestic stock market commenced the year 2024 at record valuations, particularly in the small and mid-cap segments. Following a sustained rally in January, February and March brought about some normalization in valuations. However, this month has witnessed a resurgence, with small caps rising by 4% and mid-caps.
