The Lok Sabha elections of 2024 caused substantial turmoil in the Indian stock market, resulting in the greatest market meltdown in four years. After the Bharatiya Janata Party (BJP) failed to obtain a halfway mark majority, investors are now focusing on fundamental macroeconomic factors and the impending Reserve Bank of India (RBI) monetary policy meeting.

Market Reaction to Election Results

The Indian stock market faced a catastrophic massacre on June 4, 2024, when the BJP failed to obtain a majority. The markets predicted that the BJP-led National Democratic Alliance (NDA) will win more over 300 seats. However, the results were worse than projected, generating a major uproar among investors. The Nifty 50 fell 8.5% to an intraday low of 21,281.45, opening at 23,179.50. The Sensex began trading at 76,285.78 and dropped 8.2% to 70,234.43. The Sensex ended the day at 72,079.05, down 4,390 points (5.74%), while the Nifty 50 closed at 21,884.50, down 1,379 points (5.93%).

Ajay Menon, MD & CEO, Broking & Distribution, Motilal Oswal Financial Services (MOFSL), commented, “Indian equities fell after vote counting trends indicated a lower seat count for the ruling NDA government.” We have seen an increase in volatility, with India’s VIX crossing the 31.5 threshold, putting additional pressure on the market.

Where’s the Market Headed in the Coming Days?

Amisha Vora, Chairperson and MD of Prabhudas Lilladher, stated that the market is likely to lose the ‘Modi Premium’, resulting in corrections in PSU and infrastructure companies. She stated that as the turbulence subsides, attention would shift to the key macroeconomic problems affecting India. Despite short-term volatility, the foundations of India’s growth story remain robust.

Menon believes that while the broader market may turn volatile as sentiments get hit, the major trend of the Indian equity market is expected to revive after the cooldown of volatility over the next few days. He predicts that the market’s focus will return to macro and fundamentals, which continue to remain strong.

“We expect the volatility around the outcome to reduce over the next few days and market focus to return on macro and fundamentals. Once the new government is formed, it will present its first full budget for FY25 in the next few weeks, where themes like capex, manufacturing, rural, consumption, and credit lending will be back in focus. The rural and consumption theme would also pick up pace with the onset and progress of the monsoon, which is predicted to be above normal this year,” Menon said.

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