Here's how the Lok Sabha election verdict can impact the stock market

On Tuesday, the stock markets witnessed deep cuts with both sensex and nifty falling over 5% each, due to the unexpected poll verdict in which Prime Minister Narendra Modi's BJP on its own failed to get to the 272 seats mark and although getting a majority, the NDA won less seats than expected.

Share market road ahead

In this backdrop, experts say that the worse may not be over for the markets. Financial Express quoted experts who said that a weaker mandate for the government could lead to subdued sentiment in the near term until there is some clarity on policy continuity.

UBS in a note had said that the Indian valuations that were set up for the election outcome based on predictions was too high for ordinary corporate earnings and growth outlook.

“This was not the election outcome the market valuations were set up for. India valuations have been expensive for ordinary corporate earnings growth/outlook,” UBS said in a note.

The brokerage further added that it remain underweight on India compared to other emerging markets, as some of the assumptions around political and policy stability that provided comfort to India’s rich valuations could now come under question.

Meanwhile as per Financial Express, independent market analyst Ambareesh Baliga ruled out further crack in the market but has said that it may drift for some time.

“Investors should not be surprised if market declines 1,000-1,500 points over the next few weeks or months. Fresh money coming in at this point in time would be difficult,” he told Financial Express.

Baliga further added that the drift in the market will be seen as BJP failed to get a majority exposing growth, economy, defence and railways at risk as they may be focussing on managing the allies.

Some experts who spoke to Financial Express believe that the election verdict will not have an impact on the longer-term prospects of the Indian economy.

“Such corrections are a part and parcel of equity investing…As long as investors have the right time horizon, the patience to ride out volatility and invest regularly, they can reap the benefits of staying invested in a long-term asset class like equities,” Kaustubh Belapurkar, director – manager research at Morningstar Investment Research India told Financial Express.

Also watch: Share market opens slightly higher a day after general election results