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Indian markets are known for experiencing increased volatility in the run-up to elections, mainly due to conjecture and doubts about the results. But the wait is over and the results are here. The BJP-led National Democratic Alliance has secured its victory in the 2024 Lok Sabha Elections. As predicted, the market was very volatile in the election week, with Sensex and Nifty all over the place and the India VIX hitting 31.61 points, a 52-week high.

The market rallied on the third, with the Sensex rising by over 2507 points in one day on the back of exit polls. But the slender margin of victory for the NDA and the early election trends not meeting the expectations set by exit polls resulted in the Sensex dropping back to over 4390 points.

Post-election period

The election resulted in a victory for the NDA, but India's financial future might not be as bright as anticipated. On one hand, we will have political stability and continuity, but on the other hand, the victory was tricky and the political risk comes into play going forward. The BJP not getting the majority on its own might pose hindrances in policy formation, decision making and implementation due to political differences and coalition compulsions. The government has lost unanimity on the administration front. From a market perspective, the election outcome being a close call is set to make investors agitated. We expected a sense of stability but not to the extent anticipated.

I think the market will move sideways or down rather than up for a while after the market's June 3, 2024, rally ended with a significant decline on Results Day. Many companies that were rallying due to political influence might see significant corrections to their stock prices. However, in the end, I believe that performance drives valuation and that external environment-related rallies and corrections are merely transitory. As the coalition partners work out various issues, the volatility that we had anticipated to subside after the elections may continue to be volatile for the next two weeks. The volatility, which we expected to settle after the elections, might still be volatile for the next two weeks as the coalition partners sort out various aspects. The market will take a significant amount of time to get to where it was at the record high on June 3rd.

Nevertheless, the government's agenda over some time will continue to prioritize the consolidation of economic reforms, with a strong emphasis on infrastructure development and digital initiatives. We can expect a further push for the 'Make in India' campaign, aimed at bolstering manufacturing and attracting foreign investment, crucial for economic growth and job creation in the post-election landscape. Key infrastructure projects are anticipated to drive substantial capital expenditure and open up new investment opportunities, fueling economic activity across multiple sectors.

Post election budget

The next budget, which is expected to be presented in July, will provide more clarity on the direction of the government's agenda. The Finance Ministry budget committee stated that once the winning party takes charge, they will get a sense of direction for the government's policies, focus, and framework. I think we won't see any drastic changes in the policies and the general direction of the budget will remain the same.

The government's revenues in recent weeks have been boosted thanks to a record-high RBI dividend payout of Rs 2.1 trillion and a record high GST revenue collection of Rs 1.73 trillion for May, which will empower the government's activities and ambitions. Due to coalitions, major reforms and other policies are likely to be delayed until the government is formed, ministries are allocated, and the Union Budget is declared in early July.

There will be continuity in the policies and goals due to political steadiness over the longer period. This will be beneficial for financial and macroeconomic stability and will result in good corporate earnings. The sectors that will be in focus will be the usual infrastructure, defence, railways, and PSU banks, among other key sectors. But since the government has also been paying attention to green energy, EVs, semiconductors, and domestic production industries, I expect some more progress in those areas.

Union Budget

We will have to wait for the official announcement of the full union budget for precise details. After that, we will gain a clear understanding of the country's trajectory and market trends. This will include insights into ministerial appointments, their objectives, action plans, and allocated budgets. Until then, we need to refrain from making impulsive decisions and let the financial and political environment settle.

Market strategy until government is formed

For short-term investors, I caution against buying the recent dips in the market. The market has dipped but we cannot tell which is the base of the dip until and unless the market starts to rise. 'Wait and watch' because the market is quite volatile due to the unexpected nature of the results. But, none of this should have an impact on mutual funds or SIPs. They should carry on as it is.

In the long run, these are just minor ups and downs in the overall picture of a long-term investment, so I would advise long-term investors to hold onto their optimism.

Even though the market is down, now is a great time to buy stocks if you are considering it for other reasons. But if you see a dip in the market and decide to buy the stock on the spur of the moment just because it looks good, I would suggest you reconsider because this dip could, in some circumstances, just be the beginning of the story. And we will never know its depth.

The PSU, railways, and energy sectors, which were making big moves and loud noises in the market, might settle down quite a bit due to skepticism about continued support by the government.