If Prime Minister Narendra Modi's party does not win the upcoming national elections in India, it could result in a decline in the country's stock markets.
Chris Wood, the global head of equity strategy at Jefferies LLC, mentioned at a Business Standard newspaper event in Mumbai that if the ruling Bharatiya Janata Party experiences a surprise loss, similar to what happened in 2004, there could be a significant stock market correction of 25% or possibly more.
Wood noted that the government has put in place important reforms, including ambitious incentive programs tied to output, to encourage global supply chain investment. While he believes these reforms will remain intact, he also anticipates a substantial market correction. However, he remains optimistic about a potential rebound due to the current momentum.
Back in May 2004, when the BJP-led government unexpectedly lost the national elections, Indian stock markets took a sharp 20% drop within just two days. However, the markets did recover a portion of these losses in the following days. This recovery was attributed to a coalition government led by the Congress party, which reassured both the nation and the markets that they would uphold policies designed to open up the South Asian economy.
Wood also expressed that India's growth potential is highly promising, especially within the Asian region. He noted that this perspective has been further reinforced by the ongoing challenges China is currently facing.
Concerned investors are keeping a close eye on the political situation, recognizing that the election results could have a substantial effect on India's financial markets. With the elections on the horizon, market participants are staying vigilant, looking for stability and confidence amidst the possibility of political changes.
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