The last and the seventh phase of the election will be completed on 1st June. Exit polls will be announced on that day itself and election results will be declared on 4th June.
There could be the following three broader outcomes on 4th June:
Outcome #1 NDA forming the government with BJP winning the full majority on its own: This is the most probabilistic scenario as per the investment community which means that this scenario is already discounted in the stock prices. But many investors are waiting on the sidelines to know the election outcome before they act. These investors investing in droves could take the Nifty up by around 5% in 2-3 days.
Outcome #2 NDA forming the government with BJP not getting a full majority on its own: This scenario has an element of risk. A coalition government would be seen as a weak government which could slow down the reform process. It could also be a less stable government and will be seen as a risk to policy continuity. This outcome is perceived as less probable. The markets have not priced in this scenario and hence the risk associated with this is slightly higher. Nifty can correct by more than 5% if this happens.
Outcome #3 INDI Alliance forms the government This is the least expected outcome and thus has the highest risk associated with it. Markets will perceive the outcome as unstable which will disrupt the policy continuity and pace of reforms. If this happens, Nifty can tank by more than 15%.
Election results have been highly unpredictable in the past as well. Irrespective of which party forms the government, India’s story is strong for the next 10 years, thanks to young demography and a lucky spot in the ongoing geopolitical tussle.
The ideal way to approach the election results is to follow your long-term asset allocation strategy as per the fair market valuations and avoid any speculation. Market valuation is the most important factor in determining long-term return outcomes. In case markets do correct sharply, it would be a wonderful opportunity to buy the dips for long-term gains.
Originally posted on LinkedIn: www.linkedin.com/sumitduseja
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