PM Modi & stock market: Sensex rallies 5,800 pts since June 4 selloff; fear gauge eases on political stability 

On June 4, the day of election outcome, a few analysts predicted 10-20 per cent correction in the stock market, as the PM Narendra Modi-led BJP fell short of a clear majority in Lok Sabha elections. But with the NDA forming the government for the third time with ease, and key ministry portfolios remaining largely unchanged, the BSE benchmark Sensex has rallied nearly 5,800 points post the June 4 selloff. The stock market, in total added over Rs 39 lakh crore to market capitalisation (m-cap) during this period.

The BSE Sensex hit a record high of 77,851.63 earlier today, up 5,772.58 points or 8 per cent over June 4 closing of 72,079.05. That day, the index had fallen 5.74 per cent on election disappointment. The NSE barometer Nifty, on the other hand, hit a record high of 23,664, up 1,779.50 points  8.13 per cent. Stock indices rallied as investors felt the prevailing coalition is much stronger than the ones seen in the past and that the growth trajectory stayed intact.    

Fear gauge India VIX, which stood at 26.74 on June 4, has now eased to 13.67 per cent, akin to market expectations.   The BSE m-cap jumped Rs 39.11 lakh crore to Rs 434 lakh crore from Rs 394.83 lakh crore on June 4.

"We believe that economic growth may not be impacted, as the new government is a strong coalition (BJP accounting for 80 per cent of the seats in the NDA) and its main allies - Telugu Desam Party (TDP) and Janata Dal (United) - are pro-growth (as seen in the past). Also, historical evidence suggest that economic performance is immune to the nature of the government formed at the centre," Antique Stock Broking said.

In all probability, the brokerage said, NDA 3.0 should be a stable government, as BJP (the largest party) has 240 seats (just 32 short of the 272 majority) and the second-largest party is trailing behind with a meagre 99 seats, the brokerage said. 

"If we were to look at past governments (during 1989-91 and 1996-99) that were unstable, the winning party had less than 200 seats with the second largest party trailing behind with a marginal difference. Currently, the BJP and its allies in the NDA share similar ideologies (in terms of growth, governance, etc.), hence the grounds on which they could dither or disagree upon are limited," Antique Stock Broking added. 

InCred Equities said the support of two pro-reform oriented regional parties (TDP, JDU), with limited conditions, helped ease the initial disappointment. Most ministry allocations have been retained, except for mining, heavy industry and aviation ministries, it said.

"Any delay/deviation in local state development priorities as demanded by the regional parties, and the upcoming three-state election performance in next six months can increase the perceived political risk & volatility," it said.