'This can eventually start the end of the current market frenzy, which has lasted for a full year.'
Indian stock markets could see a correction after the results of the 2024 Lok Sabha elections are out, suggests the latest report by global research and brokerage firm Bernstein.
'Somewhere in this noise of news studio debates,' the Bernstein report said, 'We seem to be losing track of ground realities in many states.' Gujarat and Rajasthan, for instance, face agitation from different communities.
While Punjab and Haryana are seeing farmer unrest, Delhi Chief Minister Arvind Kejriwal's arrest is making waves in the capital, the report said.
'West Bengal and Maharashtra are still uncertain; the gains are not easy to come by. What's more, in eight key states, including those just listed, the NDA (National Democratic Alliance) in 2019 grabbed 144 of the 146 seats, or almost 99 per cent.
'With so much to lose and almost nothing to gain, execution of 'Plan 400' will be far more challenging than setting targets.
'Incidentally, this can also be said about the policies already undertaken once the government comes to power,' wrote Venugopal Garre, managing director at Bernstein, in a note co-authored with Nikhil Arela.
In his last Parliament speech in February, Prime Minister Narendra Modi had said the Bharatiya Janata Party would win 370 seats, while the NDA would secure a total of 405 seats in the 2024 Lok Sabha elections.
On their part, the markets have already taken a knock of nearly 2,000 points since the recent peaks, with the S&P BSE Sensex slipping from the 75,000 level amid geopolitical concerns and the US Federal Reserve commentary on interest rates.
Not a cakewalk
Meanwhile, back home, opinion polls have signalled an average of 385-390 seats for the NDA, with some polls as optimistic as to give it 411.
Given the recent performance in state elections and the results of almost all major opinion polls, 390 to 400 seats may have become the new base case, says Garre.
The projections, he adds, do sound quite optimistic for NDA, given the current state of affairs.
In the 2019 Lok Sabha elections, the NDA had won around 350 seats. The additional 50 seats to take the tally past the 400 mark this time, Bernstein said, should come from south India, where it had won just five of 101 seats in 2019.
'But even that isn't a cakewalk. The inroads in Kerala, though historic, will likely be limited to 1-2 seats. Even Tamil Nadu is not expected to be much fruitful.
'The gains must come from Andhra Pradesh, Telangana, West Bengal, and Odisha. Many of these will see closely fought contests, with seats swinging wildly,' Garre wrote.
While the markets have factored in a number close to 350 or almost 400 for the NDA, a 300-odd scenario for the BJP (and 350 for NDA) could trigger a market correction.
That said, the markets, which are simply looking for a reason to fall, may overreact to a sentiment that should not mean much rationally.
'On the face of it, 300 seats will still mean the ruling party getting an absolute majority, and a construct similar to 2019, which is, in fact, a continuity of power as well as a continuity of extent of power. Still, it will be seen as a 'below consensus' result, and a reaction cannot be denied.
'This can eventually start the end of the current market frenzy, which has lasted for a full year,' Garre wrote.
Feature Presentation: Aslam Hunani/Rediff.com
