scorecardresearchHow will Indian markets react to general elections 2024? Morgan Stanley

How will Indian markets react to general elections 2024? Morgan Stanley lists 4 possibilities

Updated: 08 Sep 2023, 09:30 AM IST

Morgan Stanley expects a further 10% rise in Indian benchmark indices ahead of the 2024 general elections, driven by the anticipation of continuity and a majority for the incumbent. However, the outcome of the elections could result in volatility, with potential swings of 5% to -40%.

Morgan Stanley expects a further 10% rise in Indian benchmark indices ahead of the 2024 general elections.

Morgan Stanley expects a further 10% rise in Indian benchmark indices ahead of the 2024 general elections.

After a strong 9 percent run-up in 2023 so far, global brokerage house Morgan Stanley sees another 10 percent upside in Indian benchmark indices ahead of the general elections in April 2024. It added that the rally will be driven by the anticipation of continuity and a majority for the incumbent.

"We expect the market to rise 10 percent to the election date in anticipation of continuity and a majority. Post-election, we see the potential for the market to swing in a wide range, depending on the outcome," said the brokerage.

However, it noted that this assumes that the election dates are not advanced, which is a possibility. The central government has formed a panel to look into the possibility of 'One Nation, One Election' and make recommendations at the earliest. It added that advancing the election date could concentrate the market move into a shorter period.

The world's biggest democratic election in India with one billion voters will likely commence in April 2024 with counting and the release of results to occur on a single day in May.

Depending upon the outcome, it warns investors of volatility following the elections resulting in likely swings between 5 percent and -40 percent, underpinning how important the elections could be to the market in the short run. The outcome of the general elections, meanwhile, the Morgan Stanley note said, has enough firepower to sway the markets on either side.

Important factors to look out for

As per the brokerage, possibly, the defining moment could be if and when the 26-party opposition alliance, known as INDIA, is able to strike a seat-sharing deal. This is something we will know only closer to the election date, it said.

"If INDIA were able to muster a viable pre-poll alliance (implying seat sharing that results in bilateral contests with the BJP-led NDA), the market could become less bullish and our upside forecast would not materialize," it noted.

Further, apart from the absolute level of growth and inflation, indicators like levels of poverty, farmer suicides, terms of trade for rural India, female foeticide, infant mortality, and government transfers form part of how voters assess their prosperity, stated MS. There is also room to announce fresh policies before the elections, which can influence voters in a particular direction, it added.

It also pointed out that people who can influence the election this time around are stock market investors (over 10 crore), social media users (over 50 crore), and first-time voters (about 13 crore).

These are not mutually exclusive pools but are mostly larger in size now than they were in 2019, which is especially true of stock market investors (now at an estimated 100 million and 120 million voters) given the surge in the number of equity investors over the past five years. We see these groups as important because of their large size and their superior access to information.

“There is limited information available to say how these groups will vote in the forthcoming elections, although it is likely that the stock market cohort, which has amassed significant wealth over the past five years, will vote in favor of continuity in administration as it is more likely to ensure stock market stability,” the note informed.


The brokerage has listed 4 possible outcomes of the 2024 Indian General Elections with a market impact of in the range of 5 to -40 percent. The brokerage noted that the above assessment is based on historical precedence but could be more acute this time around. It also mentioned how in 2004, when the election results were against what the market priced in, the Sensex fell 17 percent in a single trading session. Let's take a look at the outcomes:

Outcome 1: In this outcome, Sensex will likely gain up to 5 percent if the incumbent government comes with over 260 seats or an absolute majority. "This is what is likely to be priced in based on current available information," the report said. However, the situation could change if the opposition demonstrates a strong coalition by early next year, it cautioned.

Outcome 2: In this, the lead party BJP wins less than 240 seats forming a coalition government despite a shortfall. This is less than ideal for the stock market and could result in 5-7 percent decline in the Indian markets. “The market could be concerned about the compromises that need to be made on economic policy to make a coalition government work,” it added.

Outcome 3: The lead party with circa 225+ seats with a turnover in government but the incoming anchor party has a good position in the house. This can lead to a sharp correction expectation of up to 20-25 percent, fearing policy stability and foreign sentiment and flows.

Outcome 4: In this outcome, the incumbent loses and the lead party comes with less than 200 seats which results in a weak coalition with participation of a lead party only in a supporting role. Calling it a worst-case scenario, the report expects a 40 percent crash in the index. A weak coalition will lead to lower predictability of growth. "Even though the absolute level of growth may not be at risk, the pace of execution could also be at risk," the report said.


The brokerage remains overweight on consumer discretionary, financials, industrials, and infotech and underweight on consumer staples, energy, healthcare, materials, communication services and utilities if Outcome 1 happens.

Meanwhile, in the worst-case scenario (Outcome 4), MS is overweight on energy, consumer staples, healthcare, utilities, communication services, materials, and info tech.

"To handle the volatility around the election result, investors must take a view on the likely outcome and the ensuing market reaction and tailor the portfolio to match the view. Our recommended sector allocation is a barbell portfolio that is overweight domestic cyclical, rate-sensitives, and technology," it advised.

It also recommended that investors can use 'options' (derivative strategies) to hedge against the volatility. For others, they recommend a barbell portfolio that is overweight on domestic cyclicals, rate sensitives and technology.

Overall, MS expects the domestic growth to remain strong but a global slowdown is a risk. While the Indian equity market correlation to US stocks has declined, any sharp decline (or rise) in US stock prices would influence the market in India, it said.

"Lower crude oil prices would provide flexibility to cut domestic prices, reduce inflation and increase the chance of a rate cut before the end of 2023 or 1Q24 (versus our base case of a rate cut in 2Q24)," it further noted.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.


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First Published: 08 Sep 2023, 09:30 AM IST