As Election Ends, Downgrade Threat Looms Again

A fractured mandate may lead to downgrades for the Indian economy, brokerage firm Prabhudas Lilladher says. The Lok Sabha election results are due on May 16.

"I think the big repercussion will come in terms of probably a lot of downgrades which may happen on the political front," R Sreesankar, head of Institutional Equities, Prabhudas Lilladher told NDTV. (Watch: Video)

However, the brokerage firm said that it believes that indications are that there will be a stable government. Opinion polls indicate the Bharatiya Janata Party (BJP) to emerge as the single largest party in the ongoing general elections.

Global ratings firm Standard & Poor's (S&P) had last month warned that it may downgrade the Indian economy, in the absence of effective policy action from the new government.  S&P rates India at "BBB-minus" and is the only of the three major credit agencies to have a "negative" outlook.

In the absence of a stable government, the markets too could correct "big time", Mr Sreesankar said.

"We hope it's not going to be a fractured mandate. If that happens then probably it's not good for the economy, it's going to be not good for the markets over longer period of time and market could correct big time, that's another possibility. But given the feedback what we have, we believe the market range is from 6,300 on the lower side to 7,300 on the upper side," he said.

The broader Nifty index has been hovering around 6,700 levels since last month.

The markets are likely to start reacting from May 13, after the exit poll results are declared on the evening of May 12, Mr Sreesankar said.

"There is a huge difference between opinion poll and exit poll, exit poll is probably more likely to be reliable and if that gives an indication of what's in store then you can start seeing this (market reaction) happening from the 13th of May," he said.