It was a blood bath on Dalal Street on Tuesday, with the benchmark indices crashing more than 5 per cent, as trends in Lok Sabha elections showed the ruling BJP was likely to fall short of a clear majority and the NDA, while expected to form the government, was struggling to cross the 300-seat mark. This was contrary to the exit polls, which had predicted an easy victory for the Narendra Modi-led BJP government; the average of 12 exit polls gave 366 seats to the NDA and around 145 to the INDIA Bloc.
Erasing Monday's huge gains, the BSE Sensex closed 4,389 points or 5.7 per cent lower at 72,079.05 level and the NSE Nifty50 shed 1,379 points to end the day at 21,884.50 level.
Seshadri Sen, head of research and strategist at Emkay Global Financial Services noted that the general elections had thrown up a negative surprise. "The ruling NDA is set to return with a thinner majority than in 2019, belying exit poll forecasts of a vastly-improved majority...It is likely that Narendra Modi will return as Prime Minister for a third term. However, he will have to contend with changed circumstances. First, the BJP will be dependent on regional allies and make policy adjustments accordingly. Second, there will be greater demand to stimulate consumption in the economy from both, the BJP and allies," said Sen.
Of the 30 share Sensex, 25 stocks ended in the red. State-owned companies like NTPC, State Bank of India and Power Grid, banks, metals and auto stocks were among the major losers on Tuesday. NTPC slumped as much as 15.45 per cent and SBI declined 14.4 per cent.
Compared with the large cap index, mid and smallcaps saw a bigger decline; the BSE Midcap index slumped 8 per cent and smallcap index was down 6.7 per cent.
"The unexpected outcome of the general election sparked a wave of fear selling in the domestic market," said Vinod Nair, head of research at Geojit Financial Services.
FMCG companies on the other hand were big gainers as analysts feel the government will now be more welfare-oriented, thus boosting consumption, especially in rural areas. While Hindustan Unilever jumped 6 per cent, Dabur surged 5.6 per cent and Colgate gained more than 4 per cent. Nestle, Marico and Godrej Consumer were also up over 3 per cent.
"The new verdict will likely push the new government to be more inclusive. This inclusivity could drive consumption to an even larger scale across the country. In the short term, PSU stocks may lose some momentum, but they should return to the limelight soon," said Vikram Kasat, head - advisory, Prabhudas Lilladher.
Emkay's Sen now believes factor market reforms like those related to land, agriculture, and labour are now off the table. Privatisation and asset monetisation are also at risk, which could drag government capex in the short term, he felt.
"We expect a market derating in the short term, as the risk on India has gone up. PSUs and capital goods are the most vulnerable sectors, from which we would stay away for the time being. On the other hand, consumption should come back and we see FMCG and value retailers making a strong return," added Sen.
