What will he tell us TODAY and Tuesday: Modi, majority, markets | News with opinion analysis

In the high-stakes drama that is the Indian elections, the stock market is dancing to the rhythm of voter turnout, proving that even bulls and bears are keeping a close eye on the ballot box.

Investors and market participants are closely watching the elections. (Source: PTI)

New Delhi: Heading into the 2024 Lok Sabha election season, the Indian stock exchange expected the incumbent government’s policies to continue. However, there was significant market turbulence in May 2024, driven primarily by domestic factors, including the ongoing Lok Sabha elections. The lower voter turnout observed in key states has left few analysts doubting the NDA’s ability to secure a significant number of seats. Despite the complex relationship between voter turnout and election results, the decline added a layer of uncertainty that reverberated across the Indian market in May.

In the high-stakes drama that is the Indian elections, the stock market is dancing to the rhythm of voter turnout, proving that even bulls and bears are keeping a close eye on the ballot box.

If political rhetoric and massive media bombardment are ignored, stock markets will be concerned. These concerns weighed on the market more than geopolitical tensions in the Middle East and other global factors. After six phases of Lok Sabha elections, the market still seems uncertain about the strength of Parliament in the upcoming government that will be formed after the polls.

As the seventh phase of the general election ends today (June 1), attention will turn to the exit polls that will be released on the same day, just two days before the final results (Tuesday, June 4). Investors and market participants are closely monitoring these events, anticipating their potential impact on market dynamics.

Stock markets are seen as an indicator of market health on any news. Therefore, tracking changes in market indices after the elections has become the norm. From Monday’s trading hours on the stock market, we will start to see swings in sentiment based on the various exit polls available.

The current ruling BJP party holds 303 of the 543 seats in the lower house of parliament, the Lok Sabha. The BJP-led NDA coalition, along with its allies, has 352 seats.

As an academic exercise, markets see four likely outcomes of this election.

The Modi government increases the number of seats in the Lok Sabha

Prime Minister Narendra Modi has set an ambitious target for his coalition to win over 400 seats in this election. This goal is evident throughout the high-decibel campaign he led from the front, and was a recurring theme of his speeches.

If the Modi coalition achieves this, markets can expect significant growth in the short term. A strong mandate would likely instill investor confidence because it would enable the government to implement larger and more comprehensive reforms. These may include critical changes in land acquisition policy, land reforms to increase farmers’ productivity and incomes, and administrative reforms to improve management efficiency. Additionally, a government with a clear majority could prioritize and accelerate infrastructure development, which would lead to long-term economic growth.

The Modi government maintains roughly the same mandates as it currently has

If the BJP secures a majority but with fewer seats than currently, and wins at least 272 seats to form the government on its own, there could be short-term volatility in the market. Initially, the reduced majority may have caused some uncertainty among investors, leading to share price fluctuations. However, once continuity of power is confirmed, markets are likely to calm down quickly.

It seems that the continued power of the BJP has already been taken into account to some extent in the market, which is why there were increases in November and December 2023. This anticipatory optimism reflects investor confidence in the political stability and economic direction under the BJP government. However, overdoing the same thing repeatedly can lead to inflated valuations and market distortions. Therefore, once the initial reaction subsides, attention will return to fundamental economic indicators such as macroeconomic stability, earnings growth and the stability of current valuations.

The Modi government loses more than 25 seats than it currently has

A scenario in which the BJP-led coalition wins a smaller majority may lead to a market sell-off in the short term. If the BJP-led coalition wins a smaller majority, securing fewer seats than it currently has, the party will have to compromise or adjust its policies to maintain stability in government. A weaker mandate would require greater cooperation with coalition partners, who could demand significant concessions or changes in policy direction to suit their own agendas. Investors may fear that a weaker mandate will make it more difficult for the government to push through necessary but potentially controversial reforms, such as changes to land and labor laws.

The power dynamics in the coalition will be analyzed in detail, and cabinet allocation and policy directions will influence market sentiment. Reduced political capital could slow the pace of reform, affecting broader economic prospects. These reforms are crucial to Modi’s ambition to achieve developed country status by 2047.

The Modi government loses its majority and the opposition INDIA comes to power

If the BJP loses its majority and the opposition INDIA coalition comes to power, the market may interpret the strong sell-off as a knee-jerk reaction. Uncertainty regarding the new government’s economic policy and political stability may result in a significant decline in market valuations, estimated at 10-20%. Investors would be nervous and closely monitor the new government’s stance on economic reforms, fiscal policy and governance.

(The author is a policy researcher and corporate advisor. Tweets @ssmumbai)

(Author’s disclaimer: This is not investment advice.

(Disclaimer: The views expressed in this article are solely those of the author. The opinions and facts contained in this article do not represent the views of News9.)