Exit poll results: Stock market may correct 20% if NDA loses, says Kotak

The general elections results that will be announced on June 4th will impact the share market trend. The last phase of the polls is scheduled to happen on June 1st and exit poll results will be announced on the same day.

Meanwhile, Kotak Alternate Asset Managers' Chief Investment Strategist Jitendra Gohil has warned that the stock market may fall over 20% and should take time to fully recover if the NDA alliance fails to form the next government. He further said that if BJP fails to get majority but forms a coalition government with NDA partners, markets will correct 5%-10% and in the medium term it won't make much difference

"What if the BJP gets less than the full majority mark and forms a coalition government with NDA partners? In this scenario the market may correct 5-10% in our view. However, in the medium term it won't make much of a difference and the market may recover. However, in case NDA fails to form the government - probability is thin though- the market may fall 20%-plus and will take time to fully recover," he said

Market correction

Gohil also suggested that investors should diversify portfolio and reduce risks ahead of the election results, as the upside could be limited but downside could be severe. However, he also said that the probability of NDA losing is very thin.

"It is prudent to diversify portfolios and reduce risks ahead of the election results as the upside could be limited but downside (although the probability of the NDA losing is thin) could be more than 20%. In case of a weaker mandate or NDA losing, the rupee could also come under pressure, hence would like to reiterate our positive stance on gold as well," he said.

On equities, Gohil has said that his investment committee has maintained a neutral stance.

"In our view, there is a high probability that the NDA will form the government with the BJP getting the full majority. Elections will be over on 1st June and the market will react to exit polls on 3rd June (Monday). We note that in the past two elections, the BJP got significantly higher seats compared to poll predictions," he said

In a note Gohil also acknowledged that anti incumbency, concerns over formal job creation, the perception of hardline Hindutva ideology and allegations of misusing government agencies like ED and CBI may negatively play on the voters mind.

"However, more support from the women's voter base, excellent handling of the economy in difficult times with good control over inflation and rupee, assertive foreign policies and above all weakened opposition should outweigh the reduction in vote share, in our view," he said

Gohil further added that the unexpected outcome may trigger a major sell off in PSUs, capital goods, manufacturing (especially PLI scheme related sectors), defence related stocks; but the IT and FMCG sectors may see buying interest.

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