BJP, JDU, TDP & stock market: 5 things to watch as 'bear case scenario' played out

With the BJP not securing a majority but the NDA forming the government under the leadership of Narendra Modi as Prime Minister, PhillipCapital said its bear-case scenario has played out. As a base case, the brokerage was anticipating a BJP win with clear majority.  

The brokerage said more clarity on the detailed aspects of the government formation should emerge in the next few days to weeks. Till then, it expects the market volatility to persist.

The brokerage said it would be keenly following five developments. They include the influence of NDA partners TDP and JDU on the functioning of the BJP. PhillipCapital said it would keep an eye on the extent of socialism that BJP may have to adopt. The brokerage feels socialism is needed, considering the rural distress due to inflation and lower incomes.

PhillipCapital said it would see the fiscal impact on BJP’s growth-oriented policies adopted or announced in the previous regime. Besides there would be a risk to future state elections’ outcome and the conundrum of twin-engine governments -- same party at the Centre and states.

"As clarity emerges on the above, and with further market corrections, assuming relative stability in NDA politics and policies, we will be buying equities. Not so favourable political outcome would be a risk to FII capital flows. Also, we remain vigilant on the response of domestic investors and liquidity in the equity markets – which has been the primary reason for its post-covid rise," it said.

PhillipCapital said further erosion of the Indian market valuation premium is likely as it believes that the market valuations have still not turned attractive. 

"These are early days to make any changes to GDP, earnings, and Nifty estimates; for now, we retain our estimates. The NDA coming back to power for the third successive term is a big positive. However, a weak BJP mandate could be a hurdle for the party to carry out its aggressively robust vision," it said. 

A stable government in the long run, with the continuity of BJP’s policies is what the equity markets need, it said.

"PM Modi’s late evening address post NDA win, exuded confidence of policy continuity and meeting manifesto outlook. As this plays out, trends will remain positive; otherwise, premium and expectations will have to be toned down across economic participants," PhillipCapital said.

Lastly, it would see how NDA alliance would influence the adoption or execution of tough policy decisions by BJP in an environment of lower seats and its impact on future elections.