Exit polls released on Saturday evening after the completion of the seventh and the final phase of the general elections have predicted a hat-trick for Prime Minister Narendra Modi.
An average of 10 exit polls have estimated that the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) will better its 2019 tally, winning over 350 seats. As per the projections, the opposition INDIA bloc’s seat counts will vary in the range of 107 to 201.
Buoyed by the prediction of a solid comeback of the BJP-led NDA for the third time, the domestic stock market is likely to see a surge on Monday. “Exit polls results which indicate a clear victory for the NDA with around 360 seats completely removes the so-called election jitters which have been weighing on markets in May. This comes as a shot in the arm for the bulls who will trigger a big rally in the market on Monday,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Even, foreign portfolio investors (FPIs), who sold Rs 23,364 crore of Indian equities in May, will turn buyers on the positive election outcome, he said.
Emkay Global Financial Services Lead Economist Madhavi Arora said even as exit polls are not definitive, the margin of errors have been lowered in the last two election cycles, she said. “Final outcome, if in line with exit polls, would likely calm investor nerves as political and policy continuity will be good for risk assets in the immediate run and macro stability in the medium term,” she said.
According to HDFC Securities Managing Director and CEO Dhiraj Relli, the actual seat count may be a little different on June 4 and so, there is a need to check the exact gains or losses in vote share by the two alliances. “Unless we get a surprise in the balance exit poll predictions, Indian markets may not react majorly to these numbers on a closing basis. In any case, the disappointment or the euphoria may settle down in a couple of days, and the focus may shift to the policy announcements in the first 100 days of the new government,” he said. The fact that the BJP could return to power is good for continuing and accelerating the reform process, Relli said.
The recent record-high transfer of Rs 2.1 lakh crore of dividend by the Reserve Bank of India is being seen as a factor which would provide fiscal space to the government to undertake more reforms and help it to stick to its fiscal deficit target, which is expected to prop up ratings from global rating agencies.
S&P Global Ratings, which revised up India’s sovereign ratings outlook to positive from stable last week, has said that a broad continuity in economic reforms and fiscal policies is expected, regardless of the election outcome.
Fitch Ratings in a note last week said the RBI dividend to the government would help to meet the 5.1 per cent of GDP deficit target for financial year 2024-25 and could be used to lower the deficit beyond the current target. “The new government’s budget following the release of election results in June is likely to be presented in July and it will determine how the dividend will be used. The government has signalled it aims to narrow the deficit gradually to 4.5 per cent of GDP by FY26.
Sustained deficit reduction, particularly if underpinned by durable revenue-raising reforms, would be positive for India’s sovereign rating fundamentals,” Fitch Ratings said.
The government is likely to focus on measures for small and medium enterprises as it aims to boost the share of manufacturing in India. “We can achieve moderate to high growth over a long term…small and medium sector is the backbone. We need them to grow their share in manufacturing. We also need to strengthen the supply-side infrastructure to have longer economic cycles and prevent overheating of the economy every 4-5 years, besides having financial inclusion, skilling, and electricity reforms,” Chief Economic Adviser V Anantha Nageswaran had said on May 8 while participating in a discussion at National Council of Applied Economic Research (NCAER).
Reforms are also expected at the third level of the federal structure — the panchayati raj and urban bodies — in order to encourage businesses to make investments. The next generation reforms are likely to be pushed more at the level of states than Centre.
With the Indian economy in the fourth year of economic growth, the push towards raising the share of manufacturing is being seen as a route to generate low, semi-skilled jobs. The government is likely to focus on facilitating industrial growth in centres beyond the metropolitan cities — second and third tier cities — in its aim to be a developed nation by 2047.
However, geopolitical conflicts remain a significant risk to India’s growth trajectory. The US fiscal policy and the trajectory of interest rates there and the consequent impact on the dollar will have repercussions for all major and emerging economies globally.
How have markets performed in the past elections
An analysis of the market movement in the last four general elections shows that the Sensex and the Nifty rose 3.7 per cent and 1.35 per cent, respectively, on the next day of the exit poll outcome. In 2009, benchmark indices fell 1.2 per cent a day after the announcement of the exit polls.
In 2004, the Sensex and Nifty plunged 4 per cent despite five exit polls predicting 257 seats for the NDA and 185 seats for the Congress-led United Progressive Alliance (UPA), on an average basis.
How stock market performed on the next day of exit poll outcome during the last four general elections, starting from 2004 :
2019 Exit Polls:
In the 2019 general elections, which were held between April 10 and May 17, 13 exit polls predicted 306 seats for the NDA and 120 for the UPA, on an average basis.
The Sensex and the Nifty rose over 3 per cent each a day after (May 20) the outcome of the exit polls. The surge was on account of an expectation that the BJP-led government will continue.
2014 Exit Polls:
The 2014 Lok Sabha elections were conducted from April 4 to May 12. On an average basis, 8 exit polls estimated 283 seats for the NDA and 105 for the UPA. A day after the forecasts were announced, both the benchmark indices rose 1.35 per cent.
2009 Exit Polls:
In 2009, four polling agencies predicted 195 seats for the UPA and 185 seats for the NDA, an average. The Sensex fell 1.22 per cent and the Nifty declined 1.14 per cent on the next day of exit poll projections.
2004 Exit Polls:
In 2004, exit polls predicted 257 seats for the NDA and 185 seats for the UPA. The Sensex declined 4 per cent and the 50-share Nifty fell 3.93 per cent on the next day of the exit poll forecasts.