BJP’s win in heartland to keep stock market pulse beating, say analysts, allay concerns over political risks

In the four recently held state assembly elections, the BJP locked in three bipolar contests with the Congress, sealed an emphatic victory in MP, and regained Rajasthan and Chhattisgarh. Congress secured Telangana ousting BRS. 

Read here: Brand Modi delivers ‘jaadu’ in state elections: Ten key takeaways from Assembly Election Results 2023

These state elections were termed as a semi-final to the 2024 general elections and the results prove that BJP can fight anti-incumbency effectively and Prime Minister Narendra Modi’s appeal still remains strong. Market participants will mostly view these developments positively in anticipation of reduced policy and political risks into 2024.

Numura believes BJP’s win in all three big states is a positive surprise and should calm fears over fiscal populism, at the margin.

Nuvama Institutional Equities is of the view that the BJP’s decisive wins in the high-decibel bipolar contests in the Hindi heartland imply its firm footing in the 2024 general elections. 

Also Read: Assembly election results 2023: How will the Indian stock market react?

“From an economic standpoint, this lessens the risk of a populist turn and bodes well for continued government capex. Markets are likely to cheer the electoral outcome for now as it abates political risk. Even so, the medium-term outlook is contingent on earnings, liquidity and rates,” said Nuvama Institutional Equities.

The Indian stock market indices witnessed a decent rally in the month of November on the back of strong domestic macroeconomic fundamentals, foreign capital inflows amid positive global cues. 

The benchmark Nifty 50 index hit a record high of 20,291 on December 1, beginning the last month of this calendar year on a strong note.

Also Read: Nifty 50 at record high; time to increase exposure to equities or turn cautious?

With the state election results out, Emkay Global Financial Services expects the markets to maintain their recent rally, with headwinds like geopolitical risk and a US hard-landing also receding.

“The election results are positive for the market: the BJP returning to power in 2024 is seen to be positive for policy continuity and long-term growth. Other headwinds are also dissipating.  Geopolitical uncertainty is fading and crude prices are off their Sep-Oct peaks. Fears of a hard landing in the US have also faded in the last few weeks. We see this recent rally continuing, with SMIDs leading from the front,” said the brokerage.

Equity markets were anxious about the outcome of state polls and what it portends for the 2024 general elections. With the outcome overwhelmingly in favor of the incumbent BJP, analysts believe the confidence of the market in the current dispensation and political continuity post 2024 Loksabha elections will get a boost. 

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Motilal Oswal Financial Services believes this augurs well for macro and policy momentum for India, which, at the moment, is seeing the highest growth among major economies (both GDP as well as corporate earnings). 

“We expect market sentiment to strengthen further and the prospect of a preelection rally is quite strong now, in our view. We also note that Nifty has given positive returns (9%-36%) six months into the announcement of general election results (Nov to May) on five previous such occasions (1999-2019),” Motilal Oswal said.

Meanwhile, India’s macro and micro fundamentals remain quite strong as indicated by the 7.7% real GDP growth in H1FY24 and strong corporate earnings. Nifty has delivered H1FY24 earnings growth of 30% and is poised for a healthy 20% FY24 earnings growth. 

Also Read: India Q2 GDP: Indian economy poised for strong growth in FY24? Here’s what top economists say

Considering the poll verdict, Elara Capital reiterated its growth estimates of 7.0% for FY24 and sees growth at 6.5% in FY25. Despite expected spending on free handouts, it retained FY24E CPI projection of 5.4% as core inflation will likely continue to soften. 

“We see room for a rate cut emerging only by Q2FY25 and expect the Monetary Policy Committee (MPC) to remain hawkish post robust GDP growth for Q2FY24. We see macro fundamentals for India to continue to be supportive and see a current account deficit of 1.6% of GDP in FY24E and 1.8% of GDP in FY25E. Notwithstanding anticipated spending on rural and agriculture heads in the run-up to the General Elections, we see the government at the Centre meeting its fiscal deficit target of 5.9% for FY24E,” Elara Capital said.

Sector-wise, the brokerage house sees rural- and healthcare-focused stocks coming back into focus with the BJP’s execution of schemes being more clinical and targeted. 

Also Read: RBI likely to continue with hawkish stance after Q2 GDP shoots above estimates; Here’s what experts say

“The victory should further diminish expectations of a fuel price cut at the retail level and hence should provide a leg-up to performance of oil marketing companies (OMC) stocks. With focus shifting to election preparedness and related spending, impetus to new ordering activity is moderating even as the private sector adopts a wait-and-watch approach. We see order inflow momentum weakening for capital goods and infrastructure companies at least until Q2FY25,” it said.

Meanwhile, Emkay Global favors sectors like two-wheelers (new addition), chemicals, hotels and mid-size financials. According to it, the key avoids are consumers and large financials.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 04 Dec 2023, 09:15 AM IST