Bernstein forecasts post-election profit booking in stock market

The Indian stock market, which began 2024 with record valuations, particularly in the small and mid-cap sectors, is poised for a potential correction following the Lok Sabha elections, according to analysts at Bernstein, reported Mint.

Despite a period of relative stability in February and March, recent weeks have seen renewed upward momentum, with small caps rising by 4% and mid-caps by 2%. Bernstein anticipates that the election results will act as a catalyst for profit-booking, as pre-election optimism gives way to market reassessment.

Analysts Venugopal Garre and Nikhil Arela suggest that the prevailing expectations of a strong showing by the ruling coalition could lead to a short-term negative reaction if the actual outcome falls short. However, they emphasize that the broader macroeconomic fundamentals remain robust, mitigating the potential downside.

With some polls projecting the ruling National Democratic Alliance (NDA) to secure as many as 411 seats, a result closer to 390-400 seats has become the new baseline expectation. Despite still constituting a majority, any deviation from the anticipated outcome could trigger market volatility, the analysts caution.

The looming correction, according to Bernstein, may signal the beginning of the end for the prolonged market frenzy witnessed over the past year. Nevertheless, the focus on manufacturing, highlighted prominently in recent government agendas as a means to address unemployment, is expected to persist irrespective of electoral outcomes.

As the Indian stock market braces for potential turbulence post-election, investors remain attentive to signals of market sentiment and government policy direction. Amidst uncertainties, the overarching commitment to economic growth and structural reforms provides a semblance of stability amidst the impending market adjustment.