As the Lok Sabha 2024 polls approach their conclusion, concerns about market reactions are growing with only two phases left out of seven. Market fluctuations have been observed, particularly with the S&P BSE Sensex and Nifty50 struggling to maintain higher levels as uncertainty looms over the political landscape. Analysts, such as those at Bernstein, have articulated possible consequences if the NDA does not secure the required majority of seats, forecasting a scenario of significant profit booking in the markets with limited or no returns for the year.
In the event of an unfavorable outcome for the NDA, Bernstein predicts a decline in business sentiment in the short term, foreseeing potential changes in tax structures. This shift may involve tax increases for corporations or the wealthy to subsidize benefits for the poor, subsequently impacting foreign direct investment and government budget allocations. Anticipated measures include increased government expenditure on salaries, potential wage hikes in programs like MGNREGA, and a projected rise in the fiscal deficit, potentially exceeding 5.2% for the current and subsequent fiscal years.
Moreover, implications extend to the infrastructure sector, with expectations of redirected funds from infrastructure projects to social initiatives, possibly leading to the emergence of only the most viable infrastructural ventures while others are put on hold. Provisions such as free food distribution and potential increases in social welfare programs like the MGNREGA are expected to boost consumer demand, contributing to a potential inflation surge beyond 6% in the short term according to Bernstein's insights.