Bulls are likely to dominate Dalal Street in the week starting June 3 after most of the exit polls predicted that Prime Minister Narendra Modi-led NDA government is likely to get a stronger mandate in Lok Sabha election 2024. The better-than-expected fourth-quarter GDP numbers and strong monthly Goods and Services Tax (GST) collection data are likely to further boost market sentiments.
After the conclusion of the seven-phase of Lok Sabha elections on June 1, most of the exit polls showed that the Bharatiya Janata Party (BJP)-led NDA may win more than 350 seats of the 543 seats in the Lok Sabha polls, while the Opposition INDIA bloc is expected to get close to 150 seats. If exit polls are to be believed, PM Modi is set for a historic third term with a record mandate, which would raise investor confidence in India’s economic growth.
According to market analysts, exit polls results, ahead of actual results on June 4, are set to remove election-related jitters among investors, which weighed on the market in May.
"Exit polls results which indicate clear victory for the NDA with around 360 seats completely removes the so called election jitters which have been weighing on markets in May. This comes as a shot in the arm for the bulls who will trigger a big rally in the market on Monday, says V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Largecaps in financials, capital goods, automobiles and telecom are likely to lead the rally. “The bulls will be further emboldened by the better-than-expected 8.2% growth in GDP numbers which came after market hours on Friday. Technically and fundamentally the market is poised for a rally," adds Vijayakumar.
Arvinder Singh Nanda, Senior Vice President at Master Capital Services Ltd, says that the Sensex and Nifty indices are likely to witness heightened volatility ahead of election results. “As the overall sentiment of the market is bullish hence any correctional fall may accompanied by fresh buying,” he says.
“Historical trends from the previous two election outcomes in 2014 and 2019 have shown similar patterns, where the market closed with minimal change after experiencing significant volatility during the early trading hours. From a technical perspective, the 22,400 level, near the 50-day EMA, is critical for Nifty on the downside, while the 23,400 level will be crucial on the higher side,” says Nanda.
Dhiraj Relli, MD & CEO, HDFC Securities, believes that Indian markets may not react majorly to these numbers on a closing basis unless there would be surprise in the balance exit poll predictions. “The actual seat count may be a little different on June 4. We also need to check the exact gains or losses in vote share by the two alliances.”
He further adds that in any case, the disappointment or the euphoria may settle down in a couple of days, and the focus may shift to the policy announcements in the first 100 days of the new government. “If the NDA does not get 400+ seats, some fundamental reforms requiring constitutional amendments may be challenging to implement, but there is still a lot that can be done with this kind of majority.”
Relli says that infrastructure, BFSI, capital goods, and telecom space could be the key beneficiaries, but the forthcoming Budget will throw more light on sectors that could lead the next rally. “Above normal monsoon can cheer the rural economy, which may benefit the FMCG sector,” he adds.
Here are factors that will impact market this week:
General Elections results
Going by a majority of pollster’s exit poll predictions, the NDA alliance is expected to get 350-370 seats, enough to form the government for the third time and is in line with the median forecast ahead of the exit polls. However, this number is almost the same as that in 2019 and short of the 400+ target of the alliance, says HDFC Securities’ CEO.
“Psephologiest are at their best in analysing exit polls. The actual seat count may be a little different on June 04. We also need to check the exact gains or losses in vote share by the two alliances. Unless we get a surprise in the balance exit poll predictions, Indian markets may not react majorly to these numbers on a closing basis,” says Dhiraj Relli.
Strong macros
India's GDP recorded 7.8% growth in the January-March quarter of FY24, better than what most economists had predicted and higher than 6.1% reported in the same period last year. The country's real GDP for FY24 is estimated to be 8.2% as against 7% in FY23.
Meanwhile, in an another boost for the market, monthly GST collection rose to ₹1.73 lakh crore in May, up 10% year-on-year on the back of increased revenues from domestic transactions. GST collections had touched an all-time high of ₹2.10 lakh crore in April.
Foreign funds flow
Ahead of general election results, Foreign Portfolio Investors (FPIs) have sold ₹25,586 crore in Indian equities in May 2024, while the selling in the cash market till May 30 has been excessive at ₹43,827 crore, as per NSDL data. This can be attributed to volatility in domestic stock market due to ongoing Lok Sabha elections, hawkish stance from global central banks, and outperformance in Chinese markets.
“The main trigger for the FPI selling has been the outperformance of the Chinese stocks. The Hang Seng index boomed 8 % in the first half of May triggering selling in India and buying in Chinese stocks," says Vijayakumar of Geojit Financial Services.
Vijayakumar pointed out that another reason was the spike in U.S. bond yields. “Whenever the U.S. 10-year bond yields rose above 4.5%, FPIs sold in emerging markets like India and moved money to bonds.”
Going ahead, FPI activity in June will be crucially influenced by the election results to be announced on June 4 and the market response to that, he says. “If the election results ensure political stability the market is likely to respond positively to that. FPIs also are likely to turn buyers in such a scenario. However, in the medium term U.S. interest rates will exert more influence on FPI flows."
RBI Policy
Following the election outcome, the next major trigger will be the RBI credit policy announcement slated to be released on June 7, says Santosh Meena, Head of Research, Swastika Investmart Ltd. '
"A key aspect to monitor will be the behaviour of foreign investors in the aftermath of the election results. On the global front, macroeconomic data from the USA and China will also play a significant role in shaping market sentiment," says Meena.
On Friday, both Sensex and Nifty settled marginally higher, paring most of early gains. The 30-share Sensex closed 75.71 points, or 0.10% higher at 73,961, and the Nifty50 ended 61.75 points, or 0.27%, up at 22,550. The India VIX, or ‘Fear Index’, that indicates investors’ anticipation of near time volatility, closed 1.74% higher at 24.60.
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