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Published: June 10, 2024
Updated: June 10, 2024

Dalal Street's Roller-Coaster Ride as NDA Coalition Takes Charge

Market Reactions to Election Outcomes

The recent General Elections have left Dalal Street in a state of cautious anticipation. Initially, the market surged on June 3 following exit polls predicting a decisive victory for the Bharatiya Janata Party (BJP) and its coalition, the National Democratic Alliance (NDA). However, the euphoria was short-lived as the BJP fell short of a majority, though the NDA secured nearly 300 seats, surpassing the halfway mark in the 543-member House. This unexpected result caused significant market turbulence, with analysts predicting a reassessment of policy priorities by the new government.

Market Performance and Investor Sentiments

The market capitalization of BSE-listed companies plummeted by ₹31 lakh crore on June 4, as the opposition Indian National Developmental Inclusive Alliance (INDIA) performed better than expected. Consequently, the BSE Sensex experienced its steepest single-day drop since the COVID-19 pandemic outbreak in March 2020, crashing 4,389 points (5.74%) to 72,079. The NSE Nifty also fell 1,379.40 points (5.93%) to 21,884.50. Despite these declines, both indices rebounded by over 3% on June 5.

Expert Insights and Future Projections

Ravi Singh, Senior Vice President of Retail Research at Religare Broking, assures investors not to panic, emphasizing that the market fundamentals remain strong with the NDA's return to power. He predicts a potential 5-8% upside in the market in the near term, with sectors such as banking, energy, auto, PSU, defense, and railways expected to recover. Singh forecasts the Nifty reaching 23,800-24,000 by December and the Sensex climbing to around 85,000.

Atul Suri, CEO of Marathon Trends, highlights the possibility of a realignment in government priorities, particularly benefiting the FMCG sector through rural development initiatives. He notes that regions affected by farmers' protests could see increased government support, potentially reviving the FMCG market. Suri remains optimistic about the capital goods, infrastructure, and engineering sectors due to India's developmental needs.

Sector Performance and Foreign Investor Behavior

Over the past five years leading up to May 30, 2024, the BSE FMCG index returned nearly 70%, underperforming the 30-share Sensex's 86% rise. Meanwhile, the BSE Healthcare index surged by 162% during the same period. Foreign institutional investors sold a record ₹12,436 crore worth of shares on June 4, reflecting caution among foreign investors who prefer to wait for clearer policy signals before re-entering the Indian market.

Punita Kumar Sinha, Founding Partner at Pacific Paradigm Advisors, suggests that the new NDA government might adopt a less aggressive reform approach. However, she remains confident in the underlying strengths of the Indian economy, driven by consumer demand, financialization, and digitalization, which are expected to continue propelling growth.

Historical Market Trends Post-Elections

Historically, Indian equity markets have shown resilience and delivered positive returns six months after election results. Since 1999, the NSE Nifty index has consistently provided gains, ranging from 2% to 38% within six months post-election. This trend suggests that despite initial volatility, markets tend to stabilize and recover following electoral outcomes.

In light of the recent election results and subsequent market fluctuations, investors are advised to remain patient and consider the long-term growth potential of the Indian economy. Historical data indicates that markets generally stabilize and deliver positive returns in the months following elections, reinforcing confidence in India's economic resilience and investment opportunities.