May 27, 2024 01:59 PM IST
UBS explained four scenarios for investors following results on June 4. In the worst-case scenario, equity valuations could fall to pre-NDA levels if BJP loses.
Global brokerage firm UBS said that in the worst-case scenario equity valuations could fall to pre-NDA levels if BJP loses power in the ongoing Lok Sabha elections. UBS said, “Any unexpected outcome will likely be perceived negatively at least at first, due to political instability and possible policy paralysis weighing on business sentiment and impacting investor confidence. This could trigger knee-jerk reactions in financial markets in the near term, with equity valuations possibly testing pre-NDA levels.”
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UBS explained four scenarios for investors following results on June 4. In the first scenario as per the brokerage, if BJP retains single-party majority “markets will likely remain confident about policy continuity, but the likelihood of further reforms including on disinvestment, the land bill, and the uniform civil code could depend on the number of seats won. Overall, financial market sentiment will likely remain positive.”
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In case BJP fails to retain its single majority but forms a government with the NDA, UBS noted that the market could be slightly less confident as “there could be pressure from other political alliances, but overall macro stability could still persist. We could see a mixed impact on financial markets.”
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In case of a hung parliament, UBS said that there could be higher market uncertainty and “a less decisive government could lead to lags in implementing reforms. We envisage risks of policy paralysis, which could negatively impact financial markets.”
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But if there is a change in government, there could be significant market uncertainty as UBS said that it sees “high risks of reversal of some reforms implemented by the NDA. Financial markets could potentially see a sharp knee-jerk reaction due to uncertainty that comes along with a change in government.”
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