by Bloomberg News

Prime Minister Narendra Modi’s party needs to win more than 303 seats in the general election for Indian stocks to continue their record rally, according to a Bloomberg News survey of market participants.

A slim majority for the ruling Bharatiya Janata Party could lead to a nearly 2 per cent drop in the NSE Nifty 50 index, with the rupee and sovereign bonds also expected to fall, according to forecasts from 32 asset managers, strategists and dealers. However, a win of more than 303 seats — the party’s tally in the 2019 elections — could lift the benchmark stock gauge by about 3 per cent, the survey showed.

A landslide victory would give Modi the mandate he needs to push through politically difficult reforms in land acquisition and the labor sector that are seen as crucial to boosting India’s economic growth. While investors are still backing Modi to win a third term, reports of low voter turnout and close contests in some areas have dampened their enthusiasm about his expected victory margin since voting began on April 19.

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“If he doesn’t win, that will create some uncertainty and put some pressure on valuations,” Henry Mallari-D’Auria, chief investment officer for global and emerging markets at Ariel Investments LLC, said in an interview. “At this point, there’s very little uncertainty about the outcome of this election.”

Indian stock markets have hit record levels, while currency and bond markets are at their highest in more than two months ahead of election results on June 4.

As expected, volatility has increased in both the stock and rupee markets. The 30-day implied volatility measure on the National Stock Exchange Ltd. has more than doubled from its April low, while the one-month part of the dollar-rupee options curve has risen steadily since the elections began.

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Meanwhile, global funds have pulled $2.9 billion out of local stocks this month.Indian stock markets have lagged their Asian peers this year as high valuations of about 20 times forward-12-month earnings and election fears have deterred foreign investors.

Still, some participants estimate that stock markets would rise by at least 20 percent if Modi fulfills his promise of leading his party and its allies to more than 400 seats.

JM Financial Ltd., MK Investment Managers Ltd. and UBS Group AG expect the ruling coalition to win more than 300 seats. However, UBS warned in a report last week that a change in government could see Indian stock markets at one-year forward earnings of about 15 times their pre-Modi government valuations.

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“Strong economic momentum coupled with the prime minister’s broad global business footprint suggest that the party will — on balance — win a larger majority than in the election five years ago,” said George Boubouras, managing director at K2 Asset Management Ltd. The Melbourne-based asset manager forecasts a “double-digit positive rally if the BJP wins more than 400 seats.”

first published: May 29, 2024 | 6:49 am First


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