NEW DELHI: Even if the election outcome on May 23 delivers shock verdict, Dalal Street is unlikely to swing more than 10 per cent.
Analysts say the market has already witnessed severe battering from non-political factors like adverse global cues and mixed March quarter earnings and valuations have come off quite a bit.
“I do not think there is any optimism left. People are cautious; they are suffering because of economic pain. The approach should be to get the house in order rather to going overboard with optimism,” Ravi Dharamshi, CIO, ValueQuest Investment Advisors, told ETNow.
In May alone, the market has taken a major hit following the April losses. Indian market been one of the top losers among major emerging markets so far in May amid renewed concerns over the US-China trade war. Aggregate market capitalisation of stocks listed on BSE has come off some 6.7 per cent, or $ 138 billion so far this month.
Various pre-poll surveys conducted during January-March suggested a majority verdict in favour of the BJP-led NDA. Those projections have since been revised downwards as actual ground reports started trickling in with every round of voting.
“It will not be a 20 per cent kind of a move like the one we saw in 2004, where the loss for the incumbent government came as an absolute shock. But a negative event will not have a prolonged impact,” Dharamshi said.
Tushar Mahajan of Centrum Broking feels that the market is already pricing in 5-5.5 per cent rise after election results.
“From the current level, you are talking about probably 11,800-11,850 on upside and 10,700 on the downside. That is the range we see. Given the lack of liquidity, if there is a selloff, the downward move could be exaggerated,” Mahajan said.
Some analysts have warned that China has high weightage in emerging market funds and any escalation in US-China trade war may lead to selloff by such funds, as has been evident in monthly outflows this month.
Brokerage Prahudas Lilladher (PL) expects Nifty EPS to rise 8.4 per cent in FY19 compared with a 3.8 per cent contraction in FY18. It projects Nifty EPS growth at 16.9 per cent in FY20 to Rs 553.6 and 16.8 per cent in FY21 are seen to Rs 646.7.
“If a stable NDA government comes to power, a rally can make the market test 24-25 times earnings, which gives a target of 13,272-13,825 on Nifty. Any adverse political outcome and global volatility can take P/E multiples to pre-rally levels of 19 times,” Prabhudas Lilladher said.
Nifty currently trades at 21 times one-year forward earnings, which is at a 16.6 per cent premium to the long-term average of 18.
Dharamshi said a less-than-expected poll outcome would provide more reasons for stocks to turn cheaper. “But one cannot prepare for such an outcome in advance. If you liquidate your portfolio going into the election results, and if the outcome is opposite, you may not get these valuations,” he said.
“The only thing you can control is your behaviour. Even if election result is favourable and markets go berserk, you still need to be careful, as it is not necessary that economic data would turn positive immediately,” he warned.