As D-Street on Monday cheered the Saffron Surge in Hindi Heartland post the State elections, several brokerage and equity research houses have raised the possibility of political continuity post the 2024 general election, noting that this has improved the prospect of pre-election rallies.

These results, where BJP won three major States of Madhya Pradesh, Rajasthan and Chattisgarh and was branded as a semi- final for the forthcoming May 2024 Lok Sabha elections, are expected to provide the Ruling Party at the Centre with a good tailwind for the 2024 general elections, they said.

“We expect market sentiment to strengthen further and the prospect of a pre-election rally is quite strong now, in our view. 

We also note that Nifty has given positive returns (9%-36%) six months into the announcement of general election results (Nov to May) on five previous such occasions (1999-2019)”, Gautam Duggad, Analyst at Motilal Oswal Financial Services Ltd (MOFSL) in a research note.

This MOFSL Research Note said that the equity markets were justifiably anxious about the outcome of State Polls and what it portends for the 2024 general elections. 

While State elections have shown no correlation with Lok Sabha elections in the past (BJP had lost these three States in December 2018 but won the 2019 Lok Sabha elections with a better majority than 2014), this BJP performance nonetheless removes a key overhang of political uncertainty for the markets for the next five months, Duggad added.

Gaurav Dua , Head of-Capital Market Strategy, Sharekhan by BNP Paribas, said “Markets certainly would gain momentum on the back of strong performance in State elections by BJP. It would allay concerns related to political stability and could also bring foreign inflows into Indian markets”.

Markets tend to do well in the six months preceding national elections, he said. “Do not expect the scenario to be any different this time too”,  Dua added.

Meanwhile, a research note from Kotak Institutional Equities said that BJP’s significant outperformance will further strengthen the prospects of the party retaining its majority in the Lok Sabha and the market’s conviction of the BJP winning the 2024 general elections.

“We expect election-linked market volatility to remain low, which may result in the market trading at rich valuations in the near term”, it added.

V K Vijayakumar, Chief Investment Strategiest at Geojit Financial Services, said that if the state elections can be treated as semi-final, then the indications are that the final will be an outright victory for the BJP. 

“During the last five General elections, markets had rallied in the run up to the elections. The rally normally starts around six months before the elections. Therefore, this is the right time for the beginning of a pre-election rally”, he said.

“High valuation is a concern. But when a big event happens, the market will ignore valuations and move ahead. This state election result is a big event”.

Vijayakumar said that the market likes political stability and market-friendly reform-oriented government. BJP is the party that can deliver this now and Therefore, the market will respond positively, he said.

Sandeep Nayak, CEO (retail), Centrum Broking, said the resounding BJP win in the State polls provides a sense of assurance and o establishes a strong likelihood of the ruling party securing a third term.

The markets are responding enthusiastically , echoing the sentiments of earlier rallies where gains ranged from 9% to 30%, Nayak said.

“The current rally is anticipated to be a formidable one, with expectations of a big rally even from this point onward”, he added.

Sensex and Nifty on Monday hit a record high after posting the biggest rally in over a year. All sectoral indices ended in the green on the back of State election results over the weekend and strong GDP data. 

The Nifty Bank index, which surged 3 per cent, saw the best single-day rally in 20 months. Shares of oil marketing companies —HPCL, BPCL and IOC, hit new 52-week highs.