Lok Sabha elections 2024: With stock market volatility keeping investors jittery and fear gauge India VIX suggesting heightened activity over next 30 days, brokerages are coming out with their views on what a recent fall in voter turnout in ongoing elections hint at for BJP seat wins, and the third term for Prime Minister Narendra Modi.
While a low voter turnout and anti-incumbency have no clear link, as suggested by past elections, the market has so far turned cautious, expecting no easy cakewalk for the BJP-led NDA against earlier hopes of 350-plus seats. Phalodi Satta Bazar, as per Investec, is still suggesting 300-odd seats for BJP.
Investec said such an outcome -- 300 seats--- could be disappointing for some. But it believes BJP reaching majority mark (272 seats) is the practical requirement for running a stable government, and anything over 2019 seat wins of 303 seats would indicate that BJP is increasing penetration in the country. Others agree.
Nomura India said a lower voter turnout seems to have caught markets by surprise, given the wider expectation that BJP would be able to garner an overwhelming groundswell of support, as was the case in the previous 2019 elections.
"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," said Nomura India.
Nomura said the markets might be wrong in focusing on lower voter turnout as it could be due to searing heat, voter apathy and other idiosyncratic factors.
There is no apple-to-apple comparison of phase-wise voting this time with 2019 as the number of constituencies covered in the phases of this election differs and there is no clear empirical signal from voter turnout, as low voter turnout in past elections has been associated with both incumbent victories and changes in power.
"Uncertainty is likely to prevail until exit polls (1 June) and the final results (4 June). Our base case assumes opinion polls are correct (i.e., the BJP retains power, securing a simple majority on its own). In our view, this result would likely calm investor nerves, ensure policy continuity and support macro financial stability," Nomura said.
Nomura said if the BJP does indeed secure a simple majority on its own, then this should calm investor nerves. This scenario would largely ensure policy continuity, enable a sustained focus on capex while consolidating fiscal finances, support macro financial stability and a focus on inclusive growth, it said.
"Given its higher seat share in the lower house, and rising seats in the upper house, the government may focus on the more politically contentious reforms around the factors of production including land, labour and capital. We would add that, while the market’s reaction will be different in a BJP-majority versus an NDA majority scenario, the overall direction of economic policy would still be largely similar," it said.
Here are three different scenarios and how they could impact stocks and sectors: