OPINION: Black Tuesday For Stock Market, Nifty, Sensex See Worst Crash Since COVID, What Is Next?

What a day! Counting of votes for the largest democracy of the world turned out to be a nightmare for Nifty and Sensex - the benchmarks that took cues from the early election results trend that indicated trouble for the current ruling party led by Prime Minister Narendra Modi.

The steepest decline since March 2020 was seen on Tuesday, leading to wipe out of 2024 gains. Also, Sensex and Nifty back flipped and toppled significantly from the record-breaking rally of Monday. This followed exit polls predicting a two-thirds majority for the BJP-led alliance in the lower house.

Initially television channels reported that the National Democratic Alliance was leading in nearly 300 seats. A minimum of 272 seats is required for a simple majority in the 543-member lower of parliament. But that number fluctuated and showed a downward trend by 1500 IST.

While the Modi-led National Democratic Alliance will still likely form the government, analysts said the Bharatiyaata Party winning fewer seats could prevent the government from pursuing an aggressive reform agenda.

Market sentiment is influenced by various factors. Major political events, economic data releases, and corporate earnings reports are significant drivers. So, when counting indicated lesser-than-expected votes for BJP, bloodbath in the market started.

The volatility index surged to its highest level since March 2022, reaching 29.79, after showing some stability on Monday. While market recovered a bit, the Nifty 50 still dropped by 1,379 points, closing at 21,884 and the Sensex plunged by 4,389 points, ending at 72,079. These figures represent declines of 5.93% and 5.74% respectively.

The market capitalisation of all listed companies on BSE declined by Rs 45.56 lakh crore to Rs 380.35 lakh crore during the day.

Up till June 3, bulls held the command and Sensex touched its new lifetime high of 76,738.89, with Nifty 50 hitting its record high of 23,338.70. DIIs bought heavily and FIIs were warming up to the domestic equities.

Adani, Tata, and Reliance stocks witnessed extraordinary upside contributing heavily. The banking stocks with Bank Nifty near 51,000 were the big eye-candy of investors. And let's not forget, PSUs of all sectors, were the star performers!

So why did the market witness its record-breaking rally to record-breaking falls in a matter of two days? A host of factors have played a role, but mostly mayhem emerged among investors as the election verdict became clearer and clearer. It was not a matter of whether BJP and its right-wing NDA will win the Lok Sabha Election 2024, but instead, the case was by how much. And that has played a major role on June 4th!

What Is Next? Wait And Watch...

The stock market is experiencing a period of uncertainty. Investors should ideally adopt a 'wait and watch' approach. Over the coming days and weeks, the situation is likely to develop further. As always, market will present opportunities for entry.

Experts believe that volatility will continue throughout the year. Looking ahead, 2024 is expected to be a year with multiple significant events impacting the market.

Now, the unexpected result of the general election caused fear selling in the domestic market. Despite this, market expectations of a stable Government, led by BJP, remain.

The coalition's success is expected to bring a shift in political policy, focusing on social economics. This will positively affect the rural economy and long-term growth prospects for some sectors will stay robust, analysts say.

Indian stock market will remain one of the most expensive stock market in the world and will hit new highs by the end of this year, according to most credible analysts and agencies.

But for now, all eyes are on Election Commission and hopefully in the next few days a new Government will be formed.