2024-05-10 05:06:30 ET
With more than 900 million citizens of India polling in this year’s general election, investors are keeping a wary eye on the financial markets.
The stakes are especially high given the substantial flows of capital into Indian equities in the first quarter of 2024, with more than €3 billion funneling into European funds and exchange-traded funds (ETFs) that specialise in Indian stocks.
Indian equity benchmarks, the Sensex and Nifty , plunged about 1.5% each on Thursday, despite a lack of significant negative global cues.
The BSE Sensex ended the session down 1,062.22 points, or 1.46%, at 72,404.17, while the NSE Nifty 50 fell by 345.00 points, or 1.55%, to close at 21,957.50.
Over the past five sessions, both the Nifty and Sensex have seen a correction of approximately 3.5%.
Modi’s anticipated victory and economic implications
While the re-election of Prime Minister Narendra Modi seems likely, the certainty of this outcome has led to both optimism and caution among investors.
Modi’s administration has been credited with fostering economic growth and maintaining inflation under control, with the International Monetary Fund forecasting India’s GDP growth at 6.8% for 2024-25.
However, the anticipation of Modi’s victory has been largely priced into the market, with significant implications for investors should there be an unexpected turn in the election results.
Market optimism faces valuation concerns
Despite the optimistic economic data, there is growing concern that the Indian stock market might be overvalued.
Experts suggest that Modi’s victory could further accelerate economic growth and enhance the attractiveness of the Indian market.
However, he also urges caution regarding the valuations of individual stocks.
Risks looming over the election
The market is bracing for potential shocks that could arise from a tighter-than-expected election result.
While Modi’s return to power is expected to ensure political stability and continuity in economic policies, any deviation from this anticipated outcome could cause significant market volatility.
Additionally, the economic challenges of sustaining growth, managing inflation, and boosting exports remain critical issues that the next government will need to address.
International interests and corporate movements
India’s strategic economic position is also highlighted by increasing foreign interest from major corporations like Apple and Tesla, which are expanding their operations in India due to its growing market potential and as a diversification strategy away from China.
Such movements are likely to have long-term positive impacts on India’s economic landscape.
Investor strategy in a dynamic market
Investors are advised to remain cautious and selective, focusing on companies with sustainable earnings potential and reasonable valuations.
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