Markets pricing NDA win in LS polls; eyeing budget proposals now: Analysts

The NDA, experts believe, already had a big boost ahead of the 2024 national elections in Dec 2023, winning assembly elections in three key states (Rajasthan, Madhya Pradesh and Chhattisgarh)

The markets are already pricing in a victory for the Narendra Modi-led National Democratic Alliance (NDA) in the upcoming general elections, and expect the alliance to achieve its 400-seat target, suggest analysts.

More than the outcome of the elections, the markets, analysts believe, are eyeing the (full) Union Budget proposals for fiscal 2024 – 25 (FY25) that the new government is likely to present in June/July this year.

The election outcome, said Christopher Wood, global head of equity strategy at Jefferies, is no longer 'far-fetched' as Modi-led NDA aims at winning a record number of seats.

“It should be assumed that Prime Minister Narendra Modi’s goal will be to win a record number of seats for his BJP party. Such an electoral outcome is no longer far-fetched. As for the Congress Party, the dominant political party in India since independence in 1947, it faces an existential crisis,” Wood said.

Voting to elect the 18th Lok Sabha will begin on April 19 and will be in seven phases between April 19 and June 1, the Election Commission of India (ECI) announced Saturday. The counting of votes has been scheduled for June 4.

“I believe that the markets are factoring in NDA's victory, which is why market experts are interested in buying relatively expensive stocks and companies that are theme-based, hence their expensive valuations. Additionally, investors are keen to know the outcome of the full Budget, and whether the US Fed will cut interest rates in June or postpone it,” said Shrikant S. Chouhan, executive vice-president for research, private client group, at Kotak Securities.

Volatile phase

Even though the NDA victory in the upcoming Lok Sabha polls is priced in, analysts at HSBC expect the markets to remain volatile till the election outcome is known. Market valuation, they believe, is expensive relative to the emerging markets, but still offers pockets of value particularly in the large-cap space.

 

“The general election is the key variable this year, and regardless of the outcome, the run up to the polls may be volatile for markets, and we do not rule out phases of (market) consolidation. A fractured mandate is a key downside risk that could trigger a correction given the level of uncertainty,” wrote Herald van der Linde, Head of Equity Strategy for Asia Pacific at HSBC in a recent coauthored note with Amit Sachdeva and Anurag Dayal.

The NDA, experts believe, already had a big boost ahead of the 2024 national elections in December 2023 itself, winning assembly elections in three key states (Rajasthan, Madhya Pradesh and Chhattisgarh), while Congress won Telangana.

Budget expectations

Meanwhile, a key area of focus in the upcoming budget in June/July, according to Vaibhav Sanghavi, chief executive officer, ASK Hedge Solutions may be taxation. The government, he said, could look to tweak the capital gains structure across equity and the debt segment, to have a balanced growth.

Continuity of the reform agenda set earlier by the government and according priority to infrastructure and capital goods sectors going ahead, analysts believe, is crucial. This vast sector encompasses not only companies involved in road infrastructure or construction, but also railways, defence, and ports, which are emerging investment destinations for investors.

“The government is committed to capital expenditure, and if private companies begin investing, the sector will likely be re-evaluated,” Chouhan said.

Saion Mukherjee, managing director and head of equity research for India at Nomura, too, believes that the Modi-led government is likely to take bolder reforms in case it assumes power post the Lok Sabha elections. 

The key reform areas, according to him, could include education, land reforms, taxation, thrust on infrastructure, public sector enterprises and agriculture-related reforms. “A lot, however, will depend on the mandate it gets in the upcoming general elections,” he adds.