New Delhi, Dec 4 (IANS): The BJP’s resounding victory in three of the four major state Assembly elections will further strengthen the market’s bullish sentiment, according to a report by Kotak Institutional Equities.
The BJP significantly outperformed in the pre-poll and exit-poll expectations, which will further strengthen the prospects of the party retaining its majority in the Lok Sabha and the market’s conviction of the BJP winning the 2024 general elections.
""We expect election-linked market volatility to remain low, which may result in the market trading at rich valuations in the near term," the report said.
The BJP’s solid victory in the recently concluded state elections will further bolster the market’s expectations of the BJP retaining its majority in the Lok Sabha in the 2024 general elections, the report said.
The BJP won by a landslide in the Hindi heartland states of Chhattisgarh, Madhya Pradesh and Rajasthan and increased its seats as well as vote share sharply.
It also outperformed the exit poll expectations in these states.
Meanwhile, the Congress won Telangana, which was previously held by BRS and has little BJP presence.
The BJP has outperformed in national polls versus state polls in recent history.
“We believe that the BJP is on a firm footing to win the 2024 general elections, as things stand currently. We note that BJP tends to gain vote share in general elections versus state elections, as was seen in the 2019 election cycle,” the report said.
The BJP had lost the three states of Chhattisgarh, Madhya Pradesh and Rajasthan in the 2018 elections, but won 61 out of 65 Lok Sabha seats in those states in 2019.
The BJP’s strong victory in the states will also reduce the probability of a big increase in revenue expenditure ahead of the 2024 general elections and fiscal slippage.
However, the rich valuations of the Indian market may not be enough to bring about a correction in the market. It would require a major negative trigger for the current bullish sentiment to change and the recent state elections may have probably eliminated one such trigger from the market.
If anything, the bullish sentiment of domestic retail investors (as seen in their strong participation in the market through the equity mutual funds is likely to get further strengthened by the BJP’s resounding victories in three of the Hindi heartland states while it is possible that the hitherto muted sentiment among FPIs may also see a positive change, the report said.
FPIs who had been bothered with the Indian market’s rich valuations and were hoping for a correction in the market to build more substantial positions in the market may see those hopes evaporating, leaving them with the unsavory choice of (1) staying out of a market that may not correct or may continue to do well or (2) entering the market at current levels despite their reservations about the market’s valuations in general.