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Foreign Brokerage Bernstein, part of Societe General Group, sees profit booking post-elections in the Indian equity markets coming anyway, noting that the election results will only serve as a trigger point for the inevitable.
It sees little getting changed from 2019, when NDA got about 350, although the opinion polls data for 2024 general elections made the 390-400 target look almost certain for ruling dispensation. The BJP won 303 seats in 2019, with the NDA at 353. Even repeating the historic performance of 2019 may not be enough this time to keep the markets at elevated levels.
BJP and NDA have a high chance of being restricted near their 2019 tally, with even a decline a possibility, depending on how the opposition fares in the last mile connect with voters, said Venugopal Garre, Managing Director, Bernstein in a research note titled “India Strategy: Elections—is there room for Surprises?”.
Almost all pre election polls pointed to a 380+ scenario and show that the motto of ‘400 paar’ (crossing 400) is not merely a hogwash. The average of the seven polls— data collated by Bernstein—pegged it at 385, setting the market expectations remarkably high as this would put the BJP’s tally between 340-350.
Bernstein, however, believes that the gain of seats in low penetration States may not significantly exceed the loss in others. With NDA having got about 350 seats in the 2019 election, it has to get 50 additional seats this time to reach the ‘400 paar’ mark, Bernstein has highlighted. The opinion polls, on average, give 30-40 extra seats to the BJP and NDA, Bernstein has said.
“The chances of a minor gain look high, with lower probabilities of deviating significantly above and below the 2019 tally of 350”,wrote Garre.
“With sky-high expectations having set in, a number near to the 2019 value might trigger a short term negative reaction, but we believe profit booking post elections is coming anyway …”
This stance of Bernstein is significant as a pre-election euphoria has already been built up, where the previously set expectations of continuity of power are further augmented by the ruling party coalition possibly winning over 400 seats.
This is something started by the incumbent party and is being legitimised through opinion polls of TV media, which are giving the NDA coalition as many as 411 seats (out of 543 in Lok Sabha).
The end of the euphoria phase?
So how will a 300-something scenario for BJP (350ish for NDA) play out when markets have factored in a number close to 350, or almost 400 for NDA?, Bernstein research note asked.
“A correction is inevitable and markets that are simply looking for a reason to fall may overreact to a sentiment that may not mean much rationally”, it added.
On the face of it, 300 seats will still mean the ruling party getting the absolute majority and a construct similar to 2019, which is, in fact, a continuity of power as well as a continuity of extent of power.
“Still, it will be seen as a “below consensus” result and a reaction cannot be denied. This can eventually start the end of the current market frenzy, which has lasted for a full year”, Bernstein note has cautioned.
Capex, manufacturing
Even if there were to be profit booking post elections, there would only be modest downsides as eventually the Indian macro story will take over, Bernstein has said.
“We think manufacturing and capex stories will remain a key theme irrespective of the seats garnered”, the research note added.
Indian equity markets started 2024 at record valuations, particularly in the small and mid cap space. After continuing the run in January, the months of February and March seemed to return some normalcy to the valuations, but April has picked up again with small caps up 4 per cent and mid caps 2 per cent.
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