Rupee, bond to react negatively if BJP-led NDA fails to secure 300 seats, say experts

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Indian rupee and the yields on government securities are expected to react negatively on June 4, if the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) fails to secure 300 seats in the Lok Sabha elections 2024, money market experts said.

The election results are set to be announced on June 4. The Lok Sabha has 543 seats. The President of India maintains the authority to nominate a maximum of two members to represent the Anglo-Indian community.

Sentiments of the market participants are expected to dampen if BJP secures lower seats than expected, experts said.

“If they close between 260-300, a sharp profit-booking may be seen in equities and will be negative for rupee and bonds,” said Kunal Sodhani - Vice President - Shinhan Bank.

Dilip Parmar, Research Analyst, HDFC Securities, said that there could be a knee-jerk reaction to the rupee in case of any surprise, but in the longer run, it will react to fundamentals rather than a result of election.

The BJP has set a target of more than 400 seats for the NDA, and expects to win 370-plus seats on its own.

Prime Minister Narendra Modi has been consistent in his take that a decisive mandate was not simply about an ambition to form the government for the third time.

The BJP-led allies have entered the poll fray with a promise to make the nation the third-largest economy in the world.

Before the commencement of the election process, Modi has often said that his ambition is not simply to form the government, but to make India the world’s third-largest economy during his third term.

In an exclusive interview to the Network 18 group, the Prime Minister expressed confidence in a decisive mandate for the BJP-led coalition.

"The sloganeering, remarks, campaign speeches by opposition leaders will have no effect on the overall outcome of the elections. The electorate want a strong, decisive, stable and a visionary government -- a government that reflects the aspirations of India," observed Modi.

Also read: From wealth redistribution to guarantees to corruption under UPA- the key themes this election season

Negative sentiments for INDIA bloc
If the opposition INDIA bloc secures a majority, it will hit the rupee severely and it could touch the 85-mark against the US dollar, experts said.

“If the Congress wins, 84-85 (for the rupee) is possible,” said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP.

On May 28, Congress leader Rahul Gandhi said that Modi will not become the next prime minister, calling it a "guarantee", while addressing a rally in Modi’s parliamentary constituency Varanasi.

"I am telling you with a guarantee that, after June 4, Narendra Modiji will not be the prime minister of this country," Gandhi said. "The contest between the two is intense and in this contest, Ajay Rai may win," he said.

"Market will adjust in a month or two and the asset prices will be back to normalcy, driven by the country's strong economic fundamentals," said V Ramachandra Reddy, Head, Treasury, The Karur Vysya Bank.

Yield, rupee movement since start of polling

Since April, yield on government securities fell around 10-15 basis points (bps) due to multiple factors, such as easing inflation print, Brent crude oil prices, and later, higher dividend transfer announced by the Reserve Bank of India (RBI).

The yield on the 10-year benchmark 7.10 percent 2034 bond closed at 6.9956 percent on May 28, which is sharply lower than 7.1249 percent, on May 2. The new 10-year benchmark bond was first auctioned on April 5, in which the central bank set a 7.10 percent coupon.

On the other hand, the old 10-year benchmark 7.18 percent 2033 bond was at 7.0551 percent on May 28, as compared to 7.1501 percent on April 8.

On the other hand, Indian rupee closed at 83.30 against the US dollar on May 28, as compared to 83.47 against the greenback on April 19, and 83.3838 on April 2.

Also read: How President Droupadi Murmu became a rallying point for BJP and BJD in Odisha's Mayurbhanj

Voter turnout after six phases

The first phase of the election started on April 19. On March 16, 2024, the Election Commission of India (ECI) announced the dates for the Lok Sabha and four assembly elections.

After the completion of the sixth phase of the elections, there was a voter turnout of 63.37 percent for 58 Lok Sabha Constituencies. The poll panel, on May 28, announced the final turnout data. It also released gender-wise data.

As per the ECI, male voter turnout was seen at 61.95 percent, female voter turnout at 64.95 percent and third-gender turnout at 18.67 percent.

According to the ECI, the voter turnout in the fifth phase of the ongoing polls, which commenced on May 20, recorded 62.2 percent.

Voting will end on June 1 in the seventh phase.

The turnout in the fourth phase stood at 69.16 percent, 3.65 percentage points higher than the corresponding phase in the 2019 parliamentary election. The voter turnout for the third phase of polling was 65.68 percent, compared to 68.4 percent in the third phase of the 2019 election.

In the second phase of the 2024 election, the turnout was 66.71 percent, down from 69.64 percent in the second phase of the 2019 polls. In the first phase of the ongoing general election, a turnout of 66.14 percent was recorded, compared to 69.43 percent in the first phase of the 2019 polls.

The poll panel noted that the final turnout figures will only be available after the results, with the counting of postal ballots and their addition to the total voting percentage.