Leo Gonzalez

April 26, 2024 - 00:45 am

Market Correction in Sight: According to Bernstein, a correction in the Indian markets appears inevitable, especially if Prime Minister Narendra Modi's election win falls short of expectations. This correction could be exacerbated by market sentiment, which might overreact to any disappointing election outcomes.

Pre-election Optimism: The Indian stock markets began the year at record highs, largely buoyed by optimism surrounding the upcoming general elections. Investors have been anticipating a victory for Modi's ruling Bharatiya Janata Party (BJP), given Modi's reputation as a market-friendly leader.

Performance and Expectations: India's benchmark Nifty 50 index has shown resilience, rising 3% since the beginning of the year after a remarkable 20% gain in 2023. However, recent geopolitical tensions, including those in the Middle East, have contributed to a slight decline from its recent record high on April 11.

Election Dynamics: With India's 2024 general elections underway, nearly one billion eligible voters are casting their ballots to determine whether Modi will secure a third term in office. The election outcome will influence market expectations, particularly regarding the BJP's performance and potential coalition scenarios.

Heightened Expectations: Bernstein analysts highlight the "sky-high expectations" surrounding the election outcome, with markets anticipating a strong mandate for the BJP and its coalition. However, the analysts caution that even a performance similar to the historic 2019 election may not meet these elevated expectations.

Potential Market Response: If the BJP secures 300+ seats and the broader coalition obtains 350+ seats, a correction in the markets is deemed "inevitable" by Bernstein. This outcome, while still indicating continuity of power, may be perceived as below consensus, prompting a market reaction that could mark the beginning of the end of the current market frenzy.