This report is from this week’s CNBC “Inside India” newsletter which brings you the right news, insights and market commentary on the emerging powerhouse and the big business behind its meteoric rise. As you see? You can subscribe here.
Great story
Female voters line up at a polling station during the sixth phase of voting in the national election in Delhi, India, Saturday, May 25, 2024.
Bloomberg Bloomberg Getty Images
India will count its political winners and losers in a few days after the final phase of voting for the General Elections is over.
Separately, the stock market will also give its verdict when the market opens on Monday.
Although the counting of ballots will only begin on June 4, exit polls from local media outlets will be released after voting ends on Saturday.
Anxiety among investors over the results meant that India’s VIX index, a so-called gauge of market fear, has surged more than 135% since its April lows.
Investors worry that the government will be held back from implementing major economic reforms without a significant victory for Prime Minister Narendra Modi’s BJP.
While the BJP-led coalition won nearly 350 seats – more than 60% – in the last Parliament, India heads into the polls with markets expecting the incumbents to win a record 400 seats.
A large majority would allow Modi to push through constitutional amendments and reforms to land acquisition and labor laws, which analysts say are critical to accelerating India’s economic growth.
Traders are pushing the benchmark HAPPY 50 index to an all-time high last week, closing above 22,967 points, hoping the election results will be as expected.
“With the index reaching a new all-time-high, the market is pricing out the risk of a negative surprise loss for the BJP-led coalition,” Bank of America analysts said in a new research note.
They suggest that the equity options market expects the stock to move – up or down – by 4.5% on the first trading day after the poll closes.
It would also indicate that reports of low voter turnout and close contests in some areas, concerns that initially fueled India’s VIX, have been brushed aside.
“While the BJP’s pre-election talk of securing 400 seats may have been more political hubris than a realistic goal, it entered the election with its largest single-party majority in nearly 40 years,” said Bradley Saunders, assistant economist at Capital Economics. .
“What’s more, the BJP did well in the state elections at the end of last year. Seen in that light, the BJP will have to lose a lot of passion in the short term to not secure another parliamentary majority.”
In a note to clients, Saunders also pointed to data from the Electoral Commission, which showed that voter turnout was lower than in the 2014 and 2019 elections, “which is in line with historical averages.”
However, some equity strategists point out that a landslide victory for Modi’s BJP could hurt the stock market. A classic case of “buy the rumor, sell the news.”
“We see a short-term publication of a good target of 23K, but the profit order quickly brings it back below that level,” said Bernstein’s strategist Venugopal Garre.
“Continuity of strength is known in the equity market, so we had a general meeting in Nov / December last year – playing repeatedly on the same theme led to absurd results for valuations – therefore, we believe that the focus will return to the macro. , growth earnings, valuation fairness,” added Garre.
Gotta know
Temperatures are hovering at record highs as a heat wave hits the country. A heat wave hit Delhi and parts of the north-western and central parts of the country, with temperatures hovering around 50 degrees Celsius (122 degrees Fahrenheit) for a week. The Delhi region also recorded its first heat-related death this year, Reuters reported citing local media.
S&P raised India’s sovereign rating outlook to positive. The credit rating agency said the country’s rapid economic growth had a constructive impact on its debt profile. Fitch Ratings also said that a new $25 billion dividend from the central bank to the government will reduce next year’s budget deficit – a positive event if the deficit continues to decline in a sustainable manner.
Kolkata Knight Riders won the IPL. Sunrisers Hyderabad had no chance in the final match over the weekend. SRH were all out for 113 in the first innings, the lowest total in an IPL title match. Knight Riders are chasing an easy target with eight wickets to spare.
What is happening in the market?
Indian stocks fell more than 2% this week. The decline reversed last week’s results Good 50. The index has risen 3.43% this year.
India’s 10-year government bond yield remained flat, yielding 7% on a better-than-expected reduction in the budget deficit.
On CNBC TV this week, veteran emerging market investor Mark Mobius said a BJP landslide win would make him a “super, super bull” in India. He also named his favorite sector.
Meanwhile, Gautam Chhaochharia, head of global markets for India at UBS, said foreign investors were in “wait and watch mode” ahead of India’s election results even though economic fundamentals looked “very, very strong.”
What happens next week?
Counting of votes begins next week, although exit polls will show the winner by the end of the week. India’s central bank will also discuss interest rates on Friday.
