MP, Rajasthan, Chhattisgarh: What to expect from stock markets after BJP’s 3-1 win in state assembly elections

Political stability is crucial for the Indian equity market to attract long-term foreign capital, maintain financial stability and sustain current high valuations. The BJP’s decisive victories in the recently held assembly elections in Madhya Pradesh, Rajasthan, and Chhattisgarh in the high-decibel bipolar contests in the Hindi heartland implies its firm footing in the 2024 general elections. The Congress won in Telangana, the results of which were also announced on Sunday.

From an economic standpoint, this lessens the risk of a populist turn and bodes well for continued government capex. Following the results, markets cheered the electoral outcome for now as it abates political risk. The benchmark equity indices BSE Sensex and NSE Nifty, which are hovering at their all-time high levels, advanced nearly 1.50 per cent after the results on December 4.

Jitendra Gohil, Chief Investment Officer, Kotak Alternate Asset Managers, said, “Equity market is poised for further highs. The domestic and global macroeconomic environment remains highly supportive for Indian equities. The decisive verdict could bolster investor confidence in Indian equities. Investors may extrapolate this resounding victory for the ruling government and assign a higher probability of a stable government at the centre in the forthcoming general election next year.”

These four states make up 82 of the 543 Lok Sabha seats. In the bipolar contests, the BJP has put up an impressive showing this year. This is a sharp contrast to the 2018 elections—with the Congress clinched all three states, although BJP wrested control later in MP.

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After the results, Siddhartha Bhaiya, managing director and chief investment officer of Aequitas Investments said, “We believe that there is a high probability that the ruling party would win the next elections with a good majority. Markets like stability and would continue to factor in stability in the political environment and policy decisions till general elections. General elections are a big event and markets could reflect probabilities for all outcomes, however unlikely.”

Bhaiya added that all the economic indicators reflect the growth and resilience of our economy. This also instils our confidence in consumer discretionary space. “We continue to see thrust on manufacturing, infrastructure and construction space,” he said.

Gohil said they continue to remain constructive on Indian equities and believe the market is underestimating India’s GDP growth. “We continue to favour domestically focused cyclical and interest rate-sensitive sectors for the next twelve months. We expect PSU banks and PSU stocks (power, energy, defence, cap goods, NBFCs) to experience further upside and the stocks could re-rate further.”

“We are particularly positive on the banking and financial sector, real estate, and cement. Within export-driven sectors, chemicals appear to have bottomed out and a recovery may become visible in the next few quarters, this consolidation offers attractive buying opportunities. We maintain our positive view on the pharma sector, which will likely remain well-supported by lower pricing pressure in the USA and robust growth in the domestic market. However, we anticipate potential near-term underperformance in the FMCG sector,” Gohil said.

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