The Indian stock market experienced a significant drop on Tuesday, with the NSE Nifty 50 index closing down 5.93% and the S&P BSE Sensex falling 5.74%. This was the worst intraday fall since March 2020, with foreign investors also selling the most on record. The decline was attributed to the ruling Bharatiya Janata Party (BJP) losing ground in key states during India’s federal elections, failing to secure a majority on its own. However, despite the losses, Prime Minister Narendra Modi is expected to return to power with support from his allies in the National Democratic Alliance, leading economists and analysts to believe that there will be no major long-term disruptions in the Indian economy.
One of Modi’s key priorities for his third term is to grow the manufacturing sector as a share of gross value added (GVA). The ‘Make in India’ initiative aims to attract foreign direct investment into 14 key sectors, although its success has been debated. Moving forward, infrastructure development will also be a focal point for Modi, with a shift towards producing more electric vehicles and developing sustainable infrastructure to support India’s efforts to achieve net-zero emissions by 2070.
Modi’s party has set ambitious infrastructure goals, such as constructing national highways and electrifying railway tracks, which have not been fully met. Despite this, infrastructure development will remain a key focus in Modi’s upcoming term. On the stock market, major Modi-linked conglomerates like Reliance and Adani experienced declines, but analysts anticipate a recovery as the current leadership is expected to remain with the BJP.
In terms of stocks to watch, Public Sector Undertaking (PSUs) companies face a potential short-term pullback due to the fractured mandate in the elections. Additionally, consumer discretionary and staples industries are expected to attract investor interest post-elections, as policies related to social welfare could increase disposable income. Stocks such as Adani Group, Bharti Airtel, Indian Hotels, ACC, Reliance Industries, L&T, and Vodafone Idea are highlighted as potential opportunities for investors.
If the NDA fails to form the government, investors may shift their focus to consumer-defensive stocks like Hindustan Unilever, Avenue Supermarts, and Dabur. Despite the market volatility following the election results, analysts suggest that the drop may not be significant, presenting an opportunity for investors who may have missed the previous rally. Overall, the market outlook remains cautiously optimistic with a focus on key sectors like manufacturing and infrastructure development under Modi’s leadership.
