Expectations vs Exit polls: Brokerages' best case to play out as exit polls predict big victory for the BJP

Foreign brokerage Bernstein believes that a favorable outcome for the ruling party will boost investor confidence and help continue the stock rally. On the other hand, a neutral or unfavorable result might lead to profit-taking and reassessment of gains.

The market, according to the brokerage, has been showing nervousness and fatigue over the elections, lacking a strong narrative. Stocks perceived to benefit from Prime Minister Narendra Modi's policies, especially PSUs and infrastructure sectors, have outperformed the Nifty index.

Also read: BJP win may trigger market rally, but investors looking for reforms for upside: Kotak AMC’s Nilesh Shah

Historically, initial post-election enthusiasm often leads to profit-taking. Sectors like PSUs and infrastructure are likely to see significant movement based on the election results, with banks expected to perform well in late 2024. Stocks like Bajaj Finance, Max Financials, Zomato, and DMart are considered attractive regardless of the election outcome.

JM Financial in a recent report noted that the BJP could retain its majority but added that there could be some variation in some states. The BJP's strategy and the opposition's focus on local issues could influence results, in Karnataka. A slight decrease in BJP's seats is anticipated nationally.

Investors, the report says, are cautious about potential policy changes but optimistic about fiscal stability, particularly if the BJP performs well in Karnataka. The brokerage advises investors to buy on market dips.

Also read: Exit Poll: Our market cap will double to $10 trillion in next 4-5 years, says Raamdeo Agrawal

“As policy continuity is in our base case, we expect healthy gains to follow election results on 4th June, and we believe any dips should be bought into. After the elections, the markets will shift their focus on to the Union Budget, which is likely to be tabled in July,” the report noted.

Antique Broking a report noted that contrary to fears of a 2004-like scenario, where low turnout hurt the BJP, the current political landscape has evolved. The BJP's broadening support base, especially among lower-income groups, suggests a different dynamic. Despite decreased turnout; increased political advertising and roadshows aim to mitigate overconfidence, with expectations of a significant NDA victory.

Philips Capital notes that the base-case scenario is the BJP securing 290-300 seats and NDA 330-340 seats. A bullish scenario of 325+for the BJP and 360+ for NDA would cause a sharp rise in equities. A bearish scenario where BJP lacks a majority but NDA forms a government under PM Modi might lead to a sell-off. Assuming a stable alliance, equities should be bought on steep corrections, the brokerage suggests.

The brokerage is positive on sectors like automation, EVs, defence, railways, logistics, ports, roads, real estate, metals, cement, energy, and financials. Cyclicals are favored over the consumer sector for long-term investments.

Post the elections, the one-year picks include SBI, BOB, Canara Bank, PFC, REC, Shriram Finance, Muthoot Finance etc. While top picks over a time frame of 2-3 years include HDFC Bank, ICICI Bank, SBI, Kotak Bank, Bajaj Finance, Sundaram Finance etc.

Kotak Institutional Equities analysts say that the BJP achieving around 325 seats and NDA around 375 seats would be viewed positively, with high expectations for accelerated economic reforms and policy changes.

A slightly lower count of 300 BJP and 350 NDA seats might cause initial disappointment. But, if BJP secures only 250 seats and NDA 300 seats, significant market disappointment could occur, impacting stocks like capital goods, defence, electricity, EMS, railways, renewables, and PSUs. Major indices are expected to hold up well due to strong fundamentals in banks, consumers, IT services, and pharmaceuticals.

Nomura analysts expect uncertainty to persist till April 4. The report noted that historically exit polls have been directionally accurate but conservative in their estimates. Nomura's analysis shows that all polls over the past year suggest the BJP-led NDA will return to power with over 272 seats. Recent polls from Q1 2024 indicate the NDA gaining momentum, predicting 377-411 seats, up from around 300 seats in mid-2023. This implies that the BJP is likely to secure a simple majority of more than 272 seats on its own, the report says.

If the BJP achieves a simple majority, the report believes it should reassure investors by ensuring policy continuity, focusing on capital expenditure, consolidating fiscal finances, supporting macroeconomic stability, and promoting inclusive growth.

In an early May report, Investec noted that earlier opinion polls indicated BJP are likely to win around 330 seats, though lower voter turnout may result in about 310 seats. "Satta Bazar", they say, suggests BJP will win more than 300 seats as of May 13, 2024, which may be disappointing for some.

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