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Non-NDA outcome could lead to 15 per cent stock fall: Report

THE ASIAN AGE. | RAVI RANJAN PRASAD
Published : May 17, 2019, 12:12 am IST
Updated : May 17, 2019, 6:41 am IST

They cautioned against the market's upside in near terms given the deteriorating fundamentals post-the big event.

 The market also seem to outperform due to the fact that a few stocks are during the benchmarks Sensex and Nifty higher since February 2019, UBS analysts said.
  The market also seem to outperform due to the fact that a few stocks are during the benchmarks Sensex and Nifty higher since February 2019, UBS analysts said.

Mumbai: The equity market could correct by 10 to 15 per cent if a non-NDA government comes to power after the Lok Sabha elections while the Nifty would move up by 5 to 10 per cent if the BJP achieved single party majority; these are the two extreme scenarios projected by equity analysts at foreign brokerage UBS Securities India.

"The mean of opinion polls is predicting a BJP-led NDA victory, although with lower seats than the 2014 tally," said UBS analysts, adding there is potential for surprise. "Our trips…suggest potential for a surprise vis-à-vis opinion polls in Uttar Pradesh, which was negative for BJP-led NDA and West Bengal, which was positive for BJP-led NDA," the analysts said.

"If BJP-led NDA wins 250 plus seats - the Nifty could move up by 5 per cent to touch its recent peak and if BJP-led NDA wins less than 250 seats - markets may turn volatile in near term and await actual government formation," the analysts said.

They cautioned against the market's upside in near terms given the deteriorating fundamentals post-the big event.

"Nifty is trading at 20 time 12 month forward PE (price-earning multiple) and we think the risk-reward is unfavourable, looking beyond the immediate market moves next week. The reality check of fiscal slippage and a negative growth surprise, awaits markets post this binary event," said Gautam Chhaochharia, Dipojjal Saha and Rohit Arora, Analysts and Strategists at UBS Securities India.

The market also seem to outperform due to the fact that a few stocks are during the benchmarks Sensex and Nifty higher since February 2019, UBS analysts said.

"Our investor discussions suggest markets are factoring in a BJP-led NDA win. India has performed largely in line with emerging markets (EMs) over the past year but outperformed by 5 per cent post India-Pakistan issues. Earnings trajectory has lagged the Ems materially though. The broader markets and Mid-Caps have continued to struggle," UBS analysts said.

Ten stocks drove 75 per cent of Nifty's return since the lows of February 19. These suggest there remains some anxiety around the election outcome as well as possibly fundamentals.

Exit poll results will be out in the evening of May 19, the market will be watching these results closely though and there could be some impact, the UBS Market Strategy report said.

"Exit polls have not been accurate in the last three national elections. In 2004, exit polls wrongly forecast BJP-led NDA coalition winning again, while in 2009, they meaningfully underestimated Congress-led UPA's seat share. In 2014, while exit polls correctly predicted a BJP-led NDA victory, they significantly underestimated the margin of victory," the report said.

Tags: 2019 lok sabha elections, nifty