If Modi's election win fails to meet expectations, India's markets will inevitably experience a correction, according to Bernstein.

• Bernstein stated that markets that are searching for a reason to decline may exaggerate their response to a sentiment that may not hold much significance logically.
• The 2024 general elections in India commenced on Friday with voters casting their ballots in the largest democratic election globally, determining if Modi will achieve a third term as prime minister.

As India's stock markets began the year in record-high territory, pre-election optimism played a significant role in supporting this growth. However, Bernstein cautioned that a market correction could occur following the start of the country's weeks-long election.

The Bharatiya Janata Party, led by Prime Minister Narendra Modi, is expected to win the market.

India's current prime minister, Modi, who has been in office since 2014, is viewed as a market-friendly candidate. Under his leadership, India has grown to become the world's fifth-largest economy with a GDP of $3.7 trillion and is now targeting to become the world's third-largest economy by 2027.

India's stock market has experienced an increase of 3% in value this year, following a gain of over 20% in 2023, marking its eighth consecutive year of growth.

The stock market index has fallen around 1.7% from its recent record closing high on April 11 due to geopolitical concerns, including escalating tensions in the Middle East that have affected global markets.

Venugopal Garre and Nikhil Arela, Bernstein analysts, stated in a client note that a pre-election euphoria is building up, with the ruling party coalition possibly winning over 400 seats further augmenting the previously set expectations of continuity of power.

The 2024 general elections in India commenced on Friday with voters casting their ballots in the largest democratic election globally, determining if Modi will achieve a third term as prime minister.

Over 990 million eligible voters will determine which party or coalition will hold the 543 contested seats in the Lok Sabha, the lower house of the Indian Parliament, with the winning party or coalition needing at least 272 votes to form the government.

Correction may be 'inevitable'

The BJP and its coalition may not meet expectations despite performing well in 2019, according to analysts.

The NDA coalition's analysis shows that markets have factored in a number close to 400.

If the BJP wins 300+ seats and the NDA coalition secures 350+, markets may overreact to a sentiment that may not be significant rationally, resulting in a correction.

The brokerage maintained that if 300 seats or more are secured, the ruling party will retain an absolute majority in the lower house, ensuring a continuation of power.

"The analysts predicted that the result will be viewed as "below consensus," which may trigger a reaction and potentially end the current market frenzy, which has persisted for a year."