Modi 3.0 To Spur Macro Growth; Nifty May Hit 23,000 Around June 4, Says Bernstein

As India enters the final phases of Lok Sabha elections with heightened market volatility, Bernstein expects a short-term rally to push the Nifty beyond 23,000. The incumbent government, led by Prime Minister Narendra Modi, is widely expected to come back for a third term come June 4, when the ballots will be counted. The international research firm says that this will be a crucial driver for sustained macro-economic growth.

The rally, whether leading into elections or the week after results, could potentially breach the brokerage's 23,000 target for Nifty, Bernstein said in a report on May 21. As the reality of execution and valuations emerge, a profit booking would follow, it said.

Infrastructure, manufacturing, domestic cyclical, and some financial stocks could lead this rally, while consumer and IT stocks could lag, according to the brokerage. "SMIDs may do better than large caps for a few days."

Many investors will likely be either taking fresh positions or winding up existing positions on June 4, depending on the results, the note said.

Continuity of power was known to equity markets, which is why the markets had a rally in November and December last year, the note said. "Playing again and again on the same theme leads to absurd outcomes for valuations; hence, we believe the focus will eventually return to macro, earnings growth, reasonability of valuations, etc."

The brokerage sees a higher probability of around 330–350 seats for the Bharatiya Janata Party driving some rally in the market post-election results.

The 100-day agenda of the government and expectations from the budget are other events that could play out as support catalysts, Bernstein said. "Hence, we expect some near-term buoyancy in the equity markets."

Government's policies heavily influence India, which is an early-stage emerging market that still needs to catch up with several Asian peers, according to Bernstein. "Building infrastructure, scaling up manufacturing, building a more viable export franchise, creating employment, and managing inflation—the list is long."

With India moving from the reform cycle to the execution cycle, continuity of power remains a crucial driver for the macrocycle's sustainability, the note said.