Two phases of voting for the Bihar Assembly have concluded, and the results are now awaited. The counting of votes is scheduled for November 14th. Exit polls indicate a resurgence of the NDA government. However, the market fears that if the NDA government falls at the centre.
New Delhi: The results of the Bihar Assembly elections are expected to cause significant turmoil in the stock market. Analysts say that if the ruling NDA loses its majority, the market could see a significant decline. If a coalition government is formed at the centre under the leadership of regional leaders like Nitish Kumar or Chandrababu Naidu, the Nifty could decline by 5 to 7% in the short term. Political uncertainty could lead to selling pressure. This has happened before.
A report by domestic brokerage firm Incred made this claim. Last year, when the general election results were different from expectations, the Nifty fell by 6% in a single day. This happened because investors did not anticipate the risk of a fractured coalition. This time, the contest in Bihar is very tough. Even a slight fluctuation of just 3 to 6% in the votes of the Extremely Backward Classes and young voters could lead to the NDA losing 60 seats. This could weaken his stronghold and pave the way for an alliance like Naidu-Nitish-Shinde.
How will the market react?
The stock market is susceptible to government policies and reforms and reacts quickly to even the slightest instability in the government. Pratyush Kamal of Incred Research says, “Uncertainty about the coalition means uncertainty about policies, fears of fiscal easing, and a risk-averse environment among foreign and domestic investors.” This could lead to foreign investors withdrawing funds, pushing up bond yields, and keeping the rupee under pressure until the new government’s economic roadmap becomes clear.
However, some strategists believe this market reaction may be temporary. If the new coalition government soon presents a credible economic agenda, emphasising infrastructure investment, economic stability, and fiscal discipline, the stock market could rebound as policy clarity emerges. History shows that Indian markets have always appreciated decisive leadership, regardless of the coalition. Whenever there has been clarity in governance, the market has improved.
These stocks may fall
Sectorally, stocks related to defence, the public sector, and infrastructure may decline. This is because there may be fears of decentralisation and leadership change in these sectors. Meanwhile, stocks related to consumption, regional banks, and small and medium enterprises may rise. This is because it is expected that the government will pay more attention to regional needs and increase social spending.
For experienced investors, a significant market decline could be an opportunity. If government policies remain favourable to the market, this could be a good time to accumulate shares. A senior fund manager says, “It doesn’t matter who is in power, but how they rule after the change of power. This will determine where the Nifty will end up.”
Coalition Discount
Therefore, the threat of the NDA losing power could trigger a short but sharp decline in Indian stock markets as investors try to gauge uncertainty. This is being called the “coalition discount.” However, the market’s medium- to long-term movement will depend on the credibility and continuity of the government’s fiscal and reform agenda. Exit polls are predicting a clear NDA victory in Bihar. Today, the Sensex jumped more than 600 points to cross the 84,500 mark, while the Nifty reached close to 25,900.
According to Bonanza Research Analyst Abhinav Tiwari, the Bihar results are unlikely to cause any major market fluctuations. Most investors have already assumed the NDA’s victory. The market is currently more influenced by global and national economic trends than state-level results. Since polls indicate that the NDA will remain in power, the results will primarily signal continuity and stability, which will keep market sentiment stable.
