How will stock market react to election results? Here are 3 possible scenarios

The lower voter turnout seems to have caught markets by surprise, given the wider expectation that would be able to garner an overwhelming groundswell of support, as was the case in the previous 2019 elections, analysts say.

On a weighted average basis, voter turnout so far has been 66.9%, which is lower than the 69% turnout in the first four phases of the previous 2019 elections.

"The betting markets (Phalodi Satta Bazar) are indicating BJP will likely win 300 seats (as on 13 May 2024), which may be disappointing for some. However, we believe that while BJP reaching majority mark (272 seats) is the practical requirement for running a stable government, and anything over 303 seats (their score in 2019) will indicate that BJP is increasing penetration in the country," analysts Mukul Kochhar and Jayant Parasramka said.

Also read |

The shift in election rhetoric of the BJP from governance-centered themes to religious and sectarian issues also seems to have spooked markets, with participants trying to comprehend the reasons behind this shift in strategy, market insiders say.

say the market could be overreacting as comparing phases across election years is not an apples-to-apples comparison, as the number of seats contested and the geographical spread of the constituencies differ.

Moreover, while the voter turnout of 66.9% is only a shade below the final 2019 voter turnout of 67.4%, which marked a multi-year high, it is at the same level as during the 2014 elections.

"In India, voter turnout has averaged ~59.1% since 1950s and is a shade higher, at 61.8%, for elections held since the 1980s. Therefore, if 2024 indeed ends up at ~66.9%, turnout would still be much higher than the historical average," Nomura said, adding that voter turnout and anti-incumbency have no clear link.

"Uncertainty regarding the will continue until 4 June, when the final results are announced, although on 1 June should provide some clarity on the likely results. In the past, exit polls have been directionally correct, but have been more conservative on the magnitude," said Nomura's Sonal Varma and Aurodeep Nandi.

Also read |

Stock markets and election result: 3 possible scenarios

1) Outright BJP victory

If BJP wins over 272 seats and PM retains the premiership, Nomura analysts expect a positive market reaction particularly if gets close to 400 seats.

Domestic sectors particularly financials, consumer discretionary, industrials/infrastructure and PSUs are likely to outperform while IT services and healthcare may underperform.

2) NDA victory

On the other hand, if BJP falls short of majority, but secures control of the government with the help of allies, one can expect sell-off in highly valued domestic-oriented sectors particularly industrials, infrastructure, PSUs. Nomura expects banking, consumption, and pharmaceuticals to outperform in that case.

3) I.N.D.I.A victory

Just in case if manages to get over the half-way mark, led by the Congress, Nomura fears a sell-off across most domestic-oriented sectors particularly financials, industrial/infrastructure, consumer discretionary and PSUs. Consumer staples, IT services and pharmaceuticals are likely to outperform, it said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)