Lok Sabha Elections 2024 trading strategy: After the conclusion of six voting phases and one remaining, poll strategists are busy assessing the Lok Sabha Election outcome on June 4, 2024. Meanwhile, market experts are studying the potential segments that may outperform on election day, the likely movement of Sensex and Nifty 50, and the average market returns in the short, medium, or long term. Market participants had priced in a potential third-term victory of the Bharatiya Janta Party (BJP), however, much will depend upon the outcome of Lok Sabha Election Exit Polls 2024, which will be released on June 1, 2024.
‘’In our view, there is a high probability that the NDA will form the government with the BJP getting the full majority. Elections will be over on 1st June and the market will react to exit polls on June 3. We note that in the past two elections, the BJP got significantly higher seats compared to poll predictions,” said Jitendra Gohil, Chief Investment Strategist, Kotak Alternate Asset Managers.
Stock Market Today
The Indian stock market experienced a widespread selloff on Thursday, May 30, on the expiry day of May futures and options (F&O) contracts. Market participants remained jittery ahead of the Lok Sabha election 2024 results.
The Sensex and the Nifty 50 experienced their fifth consecutive session of losses, each dropping by about two per cent over this period, resulting in investors losing nearly ₹10 lakh crore. Sensex ended with a loss of 617 points, or 0.83 per cent, at 73,885.60, while the Nifty 50 closed the day at 22,488.65, down 216 points, or 0.95 per cent.
The 30-share BSE index has been on a downtrend since May 23 when it closed at its lifetime high level. The NSE index has lost 479 points in the five sessions to Thursday. The losses were even deeper in the mid and small-cap segments today as the BSE Midcap and Smallcap indices fell 1.21 per cent and 1.33 per cent respectively.
Election-related nervousness refuses to fade as uncertainty about the election outcome has grown in the last few days. Asian stocks fell 1.3 per cent, tracking the overnight drop on Wall Street on increasing bets that global interest rates would stay higher for longer.
‘’Investors are trimming their positions ahead of the election outcome as a precaution,” said Deepak Jasani, Head of Retail Research, HDFC Securities, adding that weakness in global markets was also weighing. Retail and high net-worth investors trimmed their net long positions in Indian index futures by a sixth from mid-May to May 28, according to NSE data.
“The market is completely discounting the fact that the current government will stay,” said Aishvarya Dadheech, founder and chief investment officer of Fident Asset Management. However, if the government doesn’t make it to the majority, it will be ‘’completely catastrophic” for the market, according to Dadheech.
Lok Sabha Elections 2024 Trading Strategy:
Sensex, Nifty 50 movement on June 4
Analysts said that the current fall happening in the Nifty index is a minor speed bump in the current scheme of things. ‘’We expect the Nifty to be above the 23,000 levels on the 4th of June which is at least 500 points higher than today’s move,” said Rahul Ghose, CEO, Hedged.in
‘’ The crucial level for the Iindex is not 22,500, but is 22,000 where the maximum put writers are currently present. Large players are also creating short straddles at the 23,000 level for the June expiry which is further corroborating this earlier point,” added Ghose.
Kotak’s Jitendra Gohil maintains a constructive stance on equities ahead of the general election results on June 4. The investment committee decided to maintain a neutral stance on equities i.e. to stay invested in line with asset allocation.
Sectors to track on June 4
Large caps, PSU entities and public sector banks (PSBs) are some of the sectors to track on the important results day and for the rest of the year as well. Rahul Ghose of Hedged.in expects this to be the year for the large caps
Market experts noted that in case the NDA fails to form the government in 2024, it may trigger a major sell off in PSUs, capital goods, manufacturing (especially PLI scheme related sectors), defence related stocks. However, the IT and FMCG sectors may see buying interest.
In case of BJP’s victory, the policy continuity will ensure that the government’s main focus will remain on infrastructure development and manufacturing, which will benefit sectors in defence and capital goods space, said analysts.
‘’Unlike in past periods, in this cycle we prefer large caps in 2024 as we look for valuation comfort. On a sectoral level, we find valuation comfort in Private Banks and Consumption space, which are expected to outperform the benchmark in the near term,” said Hitesh Suvarna of JM Financial Securities.
Stocks to watch on June 4
Heavyweights including Reliance Industries Ltd (RIL), Larsen & Toubro (L&T), Adani Group stocks as well as PSU stocks Bharat Electronics Ltd (BEL), REC, and PFC are some names to watch out for during the session on election results.
How did stock markets perform in last five general elections?
An assessment of market returns during the last five general elections conducted by JM Financial Securities revealed that overall market returns turn positive three months after results, while on a sectoral basis, positive returns are seen largely across sectors six months after results. Small and mid-caps outperformed large caps post results in every timeframe in past cycles. Sectors like auto, consumer durables, and healthcare outperformed the benchmark indices.
‘’As market performance was impacted by concerns around global slowdown during Aug’19, analyzing returns post-2019 elections will not give a true picture, hence, we look for periods where market conditions were similar, i.e., 2014 general elections when equities were already performing in the run-up to elections,” said JM Financial’s Hitesh Suvarna.
‘’We expect healthy gains to follow election results on June 4, and we believe any dips should be bought into. Currently, Nifty is trading at 20x forward PE, closer to one standard deviation from the long-term mean, which we consider reasonable. We believe that post-election results, markets will shift their focus to the Union Budget, which is likely to be tabled in July,” added Suvarna.
How will markets respond if BJP comes back to power?
Rahul Ghose of Hedged.in said, ‘’If BJP wins then we can see at least a 600 point uptick or three per cent move on the Index as it is doubly a good situation. However, it is important to keep in mind that we expect FY 25 not to give the kind of return FY 24 has given.”
Kotak’s Jitendra Gohil added that a +/- 10-20 seats for the BJP compared to the previous seat count of 303 should not make much of a diffence to the market trajectory. Investors are looking for a stable government with continuation of policies. Hence, full majority for BJP will be business as usual for the market
If the BJP gets less than the full majority mark and forms a coalition government with NDA partners, then the market may correct 5-10 per cent in this scenario. ‘’However, in the medium term it won’t make much of a difference and the market may recover,” said Gohil.
How will markets respond if BJP fails to form government?
In case the NDA fails to form the government – probability is thin though- the market may fall 20 per cent or more and will take time to fully recover, according to Kotak Alternate Asset Managers.
‘’If BJP loses there will be a downward reaction for sure on the index, either after the knee-jerk up move (assuming NDA wins) or first the down move which will get bought into eventually, but a down-move is certain,” said Rahul Ghose. Also Read: Phalodi Satta Bazar predicts clear majority for BJP in Lok Sabha elections; investors eye seat share, voter turnout
Where will markets head post-election?
Market experts noted that there will be heightened volatility on June 3 and June 4. If the exit polls indicate a clear trend, which is favourable from the market perspective, buying decisions will be easy even after a spike in prices.
A major concern is the spike in US bond yields pushing the 10-year yield above 4.6 per cent. This can trigger continuation of the FII selling which will depress the prices of largecaps further.
‘’The highly valued mid and smallcaps remaining resilient and the fairly valued largecaps turning weak is a short-term aberration. Long-term investors can profit from this temporary aberration,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
If the initial knee-jerk reaction is on the upside beyond 23,500 on the Nifty, then analysts expect the trajectory to continue on the upside beyond 24,200. If the knee jerk does not take the Nifty to 23,500, then markets may fall back below the 23,000 levels.
‘’The second half of the year, like the May series, is going to see continued volatility. Either trading hedged strategies or being stock-specific is the way to be. I see upside in counters such as Hindustan Unilever, Zomato, IRCTC to name a few,” said Ghose of Hedged.in.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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