Morgan Stanley anticipates a disruption in the calm of India's $3.7 trillion stock market as the country, one of the world's most populous nations, approaches polls in about six months. The Wall Street bank foresees a typical upward trajectory in stocks leading up to the election, aligning with historical patterns.
However, Morgan Stanley warns that any electoral outcome that deviates significantly from investors' expectations has the potential to trigger a substantial decline, possibly up to 30%, in India's equity benchmarks, as reported by Bloomberg. The looming elections introduce an element of uncertainty that could significantly impact market dynamics in the coming months.
A "credible seat-sharing arrangement" within the opposition alliance led by Congress, called INDIA, will "polarize the general elections and reduce the predictability of the outcome in May", strategist including Ridham Desai wrote in a note on Monday.
Indian stocks have demonstrated strong performance this year, boasting a 7% increase that surpasses their counterparts in both Asia and emerging markets. This upward trend is attributed to the allure of India's growing earnings and economy, attracting investments from both domestic and global investors.
In parallel, the India VIX, a measure of anticipated stock-price volatility, has experienced a notable decline of 25% year-to-date, approaching historical lows. The combination of robust stock performance and decreased volatility suggests a period of relative stability and confidence in the Indian stock market.
"A potential change in government could lead to changes in the direction of policy reform and execution leading to poor investment sentiment,” Morgan Stanley said, Bloomberg reported
(With Agency Inputs)
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