Nifty may correct 5-7% if Bihar election unfavourable for BJP, markets may price in ‘coalition discount’

Nifty, Sensex, Share Market Outlook

Indian equities could face a short-term correction if the Bihar assembly election results diverge from exit poll projections favouring the ruling National Democratic Alliance (NDA), according to a strategy report by InCred Research. Nonetheless, the markets showed buoyancy for today, with the exit polls favouring an NDA win.

The brokerage warned that a loss for the NDA may prompt investors to price in a “coalition discount,” potentially triggering a 5-7 percent slide in benchmark indices. However, the report also noted that any such fall could be brief if the eventual ruling coalition demonstrates fiscal prudence and policy continuity.

InCred said a reversal in Bihar would likely be viewed as a political bellwether, raising concerns over national policy stability. The note pointed to razor-thin margins between the NDA and the Mahagathbandhan (MGB) alliance, with vote shares nearly tied at around 33 percent each. It added that a 3-6 percent swing among extremely backward classes (EBCs) and youth voters could decisively alter the outcome across over 100 marginal constituencies.

The report highlighted that the emergence of Jan Suraj, projected to capture around 10 percent of the vote, could fragment the NDA’s traditional upper-caste and non-Yadav OBC base. Such a result may unsettle market sentiment, leading to a near-term pullback similar to the “coalition discount” seen in the aftermath of past inconclusive polls, it said.

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Watch Infra, Defence sectors for roll-off, Consumption play for outperformance

InCred expects the impact to be sectorally uneven. It cautioned that infrastructure, defence, and PSU stocks -- key beneficiaries of government capex and policy continuity -- could see a temporary roll-off, while consumption, regional, and SME-focused plays might outperform in a politically fluid environment.

For now, optimism prevails. Indian equities rallied nearly 1 percent on Wednesday, with the Sensex climbing over 700 points and the Nifty reclaiming the 25,900 mark, buoyed by upbeat exit polls in Bihar, firm global cues, and optimism around a possible India-US trade deal.

“Sentiments have turned for the better with the exit polls indicating a decisive victory for the NDA in Bihar,” said V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “This will strengthen the bulls, though it may not yet be enough for the markets to stage a decisive breakout.”

Prashanth Tapse, Senior Vice President (Research) at Mehta Equities, added that “bulls are in charge, buoyed by exit polls predicting an NDA landslide, optimism over a US–India trade deal, and hopes of an end to the US government shutdown.”

Kotak Private Banking, quoted by Reuters, noted that exit poll trends reinforced “expectations of policy continuity and government stability,” further supporting market sentiment.

While the near-term tone remains positive, InCred’s note cautions investors to watch how Bihar election results translate into fiscal and policy assurances in the weeks ahead.

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