Exit polls euphoria led to stocks rout; reforms to suffer under coalition: Experts

The equity market tanked due to expectations of a big NDA win created by the exit polls, key market participants said on Tuesday, stressing that the India story is intact from a medium- to long-term perspective.

All of them said the markets will continue to be volatile for a good part of this week, and will await clarity on the exact number of seats the BJP and the NDA win to retain power and key portfolio allocations.

Domestic brokerage HDFC Securities' Managing Director Dhiraj Relli told PTI that with a seat tally of about 240 seats with the BJP and under 300 for the extended NDA, Prime Minister Narendra Modi will not be able to carry forward reforms on land, labour, and agriculture.

The progressive steps on such critical aspects will "go on the backburner", Relli said. He was also quick to add that this will not directly impact the capital markets.

The new government, most likely to be an NDA-led coalition, will have to forego the "intensity" of implementing the promises made in the manifesto, he said, adding that Tuesday's 5.74% fall in the benchmark was a "knee-jerk" reaction after the euphoria created by the exit polls, which showed Modi regime continuing with over 350 seats.

A Balasubramanian, the Managing Director and Chief Executive of Aditya Birla Sun Life AMC, concurred saying the poll outcome came as a surprise for investors who were expecting a comfortable win for Modi.

He told PTI that the change in power dynamics will have to be watched closely, and stressed that the equity market's reaction to the results should not make anyone doubt the India story, which remains intact from a medium- to long-term perspective.

As per results and trends, National Democratic Alliance is set to have about 290 members in the lower house of the Parliament while Modi's BJP is set to have much lower numbers at about 240. These numbers are sufficient to form the government, but make Modi rely on alliance partners to run the government, which will be a first.

Balasubramanian said from a mutual fund perspective, there will be decent fund flows in June despite the negative sentiment which is built in and advised investors to stick to disciplined approach rather than worry about timing the market.

Investors like continuity in policies, but the short-term volatility in the market should be considered as an opportunity to build the portfolio, Manish Jain, director of institutional business at Mirae Asset Capital Markets, said.

"The election results are showing a less than halfway mark for the current BJP government, pointing towards a coalition government. This will lead to dependence on allies in making key policy decisions, and sharing certain cabinet seats, which will lead to policy paralysis and uncertainty in the government's functioning," Yashovardhan Khemka, Senior Manager, Research & Analytics at Abans Holdings, said.

The markets are pricing the risk associated with this scenario, and the potential impact of a shift toward socialist policies by the government, thus leading to sell-off in the market, Yashovardhan Khemka, Senior Manager, Research & Analytics at Abans Holdings, said.

"The future trajectory of the market depends on the new government's economic policies, with factors like GDP growth, inflation, and global conditions playing a key role," Hedonova CIO Suman Bannerjee said.