Stock market future trajectory depends on new govt's policies, GDP growth

Future trajectory of stock market hinges on the new government's economic policies, with factors like GDP growth, inflation, and global conditions playing a key role, experts said on Tuesday.

With the BJP-led NDA still looking to form a government, though with the important support of coalition partners, markets look jittery about the prospects of strong decision making.

In fact, experts cautioned investors to be prepared for volatility due to currently high valuations and suggested adopting a diversified approach.

Benchmark equity indices Sensex and Nifty tanked over 8 per cent in intra-day on Tuesday and later ended nearly 6 per cent lower, suffering their worst decline in four years, as trends showed the ruling BJP is short of clear majority in the Lok Sabha elections.

Sensex crashed 4,389.73 points to settle at 72,079.05 and Nifty tanked 1,379.40 points to 21,884.50. However, markets jumped sharply on Monday after exit polls predicted a massive win for the BJP-led NDA in the Lok Sabha polls.

The reformistic approach, which was a hallmark of the previous two terms of the NDA government, might take a backseat in the third term, Manish Chaudhary, Head of Research, StoxBox, said.

As per the available trends, BJP is likely to get about 240 seats in the 543-member Lok Sabha. Now it will have to rely on allies like TDP and JDU to form the next government.

"The election results are showing a less than halfway mark for the current BJP government, pointing towards a coalition government. This will lead to dependence on allies in making key policy decisions, and sharing certain cabinet seats, which will lead to policy paralysis and uncertainty in the government's functioning", Yashovardhan Khemka, Senior Manager, Research & Analytics at Abans Holdings, said.

The markets are pricing the risk associated with this scenario, and the potential impact of a shift toward socialist policies by the government, thus leading to sell-off in the market, Yashovardhan Khemka, Senior Manager, Research & Analytics at Abans Holdings, said.

"The future trajectory of the market depends on the new government's economic policies, with factors like GDP growth, inflation, and global conditions playing a key role," Suman Bannerjee, CIO, Hedonova, said.

Since May 2014, a combination of political stability with promises of reforms, improving economic conditions, and supportive global factors like quantitative easing by developed markets fuelled a strong rally in Indian stock markets. This surge had led to over Rs 300 lakh crore in investor wealth, reflecting growing confidence and participation.

Experts said investors like certainty and continuation of policies, India is a long-term structural growth story.

"A lot of elements are in place. Over anything the economics should prevail. We are already in top in factors like GDP, market cap, demographic dividend etc," Manish Jain, Director - Institutional Business (Equity & FI) Division at Mirae Asset Capital Markets, said.