Mumbai: The equity markets could see a steep correction of about 15-20 per cent if the Lok Sabha elections end up with fragmented coalitions. On the other hand, if the results come in line with the opinion polls and India gets a stable government led by BJP’s prime ministerial candidate Narendra Modi, the equity markets could rally higher by another 10 per cent from the current levels, according to Jyotivardhan Jaipuria, a research analyst at foreign brokerage house Bank of America Merrill Lynch (BoAML).
A 20 per cent downside means, the Sensex could fall by 4,480.77 points to 17,923.11 from its Monday’s close of 22,403.89 while it could rise by 2,240.38 points or 10 per cent if India gets a stable government as projected by various opinion polls.
Polling has been completed in 437 out of 542 seats and elections for the remaining 105 seats are scheduled for May 7 and 12.
As we expected, the market is likely to continue to be soft over next two weeks, as investors take some risk off the table. The last opinion polls were forecasting the BJP-led government at 260-265 seats.
“If the results come in line with the opinion polls and we get a stable coalition, we expect a 10 per cent rally in markets from current levels by year-end,” analysts at BoAML said in a note to their clients.
However on a cautious note, they added that if the elections throw up a surprise and we end up with a fragmented coalition, the markets would reverse their gains and we could see a sharp 15-20 per cent correction.
