'Outright' win for Modi’s BJP highly likely, will trigger positive reaction in stocks: Nomura

Nomura

An outright election win for Prime Minister Narendra Modi-led BJP has a ‘high likelihood’, and will trigger a positive reaction in Indian equities, said Nomura in a note. The general election for 543 Lok Sabha seats will be held in seven phases from April 19.

A BJP win with over 272 seats -- the majority mark -- and a likely 400-seat haul for the alliance NDA, will fuel domestic sector stocks in financials, consumer discretionary, industrials/infrastructure and PSUs to outperform, said Nomura in its latest pre-election note. On the other hand, IT and healthcare stocks might underperform.

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A clear majority for the BJP will enable a reform outlook with policy continuity, focus on public capex, fiscal consolidation and strong governance. Reforms on land and labour could get easier, even though requiring a consensus, said Nomura.

Nomura said that in case BJP falls short of a majority but NDA sees a comfortable win, the equity market might see a sell-off in highly valued domestic-oriented sectors such as industrials, infrastructure, PSUs while banking, consumption, and pharmaceutical might outperform. This scenario has a ‘medium likelihood’ though, the report added.

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However, a BJP or NDA victory may cause bond yields to fall a few basis points (bps). On the other hand, the opposition alliance I.N.D.I.A's win could lead bond yields to rise by 10-20 bps, as foreign investors reduce their position on currency outlook and domestic investors reassess the fiscal outlook.

The brokerage firm sees a 'low' possibility of the coalition Indian National Developmental Inclusive Alliance (I.N.D.I.A) emerging as the victor. In case the I.N.D.I.A coalition manages to get over the halfway mark, led by Indian National Congress (INC), the equity market can expect a sell-off across most domestic-oriented sectors particularly financials, industrial/infrastructure, consumer discretionary, and PSUs. However, shares of the IT and pharmaceutical sectors might see an outperformance in this case.

Markets under Modi

Since Narendra Modi assumed office on May 26, 2014, the Nifty 50 has risen from 7,359 to 22,055, indicating a rise of 200 percent. Meanwhile, Sensex went from 24,700 to 72,700, a gain of 195 percent.

In the past 10 years, Nifty Energy, Nifty Realty, Nifty Metal, and Nifty IT saw significant gains while also outperforming the Nifty 50 index.

Modi's government has undertaken significant reforms demonetisation, the introduction of the Goods and Services Tax (GST), the rollout of the Unified Payment Interface (UPI), and the Make in India initiative.