Nifty 50 rose 0.31 per cent to 22,597.8 points today. (Representational)
A short-term rally either leading into elections or the week after results could potentially push the Nifty beyond 23,000, international research firm Bernstein said. Infrastructure, manufacturing, domestic cyclical and a bit of financials might lead this rally while consumer and IT stocks could lag, Bernstein said in a report. "SMIDs (small and mid caps) may do better than large caps for a few days," it added.
"Based on what we see from various pre-poll surveys and the lack of visible anti-incumbency wave, we are building in the case of continuity of power," the report said.
India has so far voted in five rounds of mammoth seven-phase Lok Sabha elections. Votes will be counted on June 4, with Prime Minister Narendra Modi expected to win a rare third consecutive term.
The markets ended on postitive note today amid volatility with blue-chip NSE Nifty 50 rising 0.31 per cent to 22,597.8 points
The report said that India is an early-stage emerging and still needs to catch up with several Asian peers.
"Building infrastructure, scaling up manufacturing, building a more viable export franchise, employment, and managing inflation - the list is long. With India moving from the reform cycle to the execution cycle, continuity of power remains a crucial driver for the sustainability of the macrocycle," the international research firm said.
Many investors are likely to either take fresh positions or wind existing positions, depending on the results on June 4, the brokerage said.
The report predicts a higher probability of around 330-350 seats for the BJP, which might lead to a short-term breach of the 23,000 Nifty target, "but a swift profit booking brings it back below that level".
"The 100-day agenda of the government and expectations from the budget are other events that could play out as support catalysts. Hence, we expect some near-term buoyancy in the equity markets," it stated. Continuity of power was known to equity markets, which is why we had a rally in November/December last year, the report added.
A meeting chaired by Prime Minister Narendra Modi with his council of ministers in April discussed the road map of the map of the first 100 days of his new government to "march towards a Viksit Bharat or a developed India by 2047". In the meeting, PM Modi reportedly asked the ministers the economic momentum should not stop and new government would have to start working from the very next day after taking the oath.
From 2014, the country's growth story started taking a giant leap with large-scale reforms that came at a rapid pace, partly also being helped by the ruling party getting a majority unforeseen for three decades, the brokerage firm said.
"This reason, coupled with the performance on fiscal parameters, keeping inflation under check, a better track record on capex and a sustained manufacturing push, is why the markets will react positively to continuity of power and can trigger a short-term correction in case the results for ruling party are significantly down from expectations," it said.