Bitcoin (BTC) Faces Potential 20% Plunge Amid Uncertain Election Outcomes, Analysts Warn

<ul>
  <li>The benchmark Nifty-50 index scaled an all-time high of 23,007.20 on Friday, while the Sensex is also trading near its all-time highs.</li>
  <li>The gains are being fueled by the expectation that the ruling Bhartiya Janata Party-led National Democratic Alliance (NDA) is likely to regain power.</li>
  <li>"The strong dividend payout by the Reserve Bank of India has also helped improve sentiments as the fiscal deficit will get reduced," said a market analyst.</li>
</ul>
<p><strong>Market surges as Nifty-50 hits all-time high amid election optimism and RBI dividend boost.</strong></p>
<h2><strong>Sharp downside for markets if election results deviate from expectations</strong></h2>
<p>In the less probable event that the election results significantly deviate from market expectations, the stock market could witness a substantial 20% decline, said Sunil Damania, Chief Investment Officer, MojoPMS. In such a scenario, the market might require up to six months to stabilize and return to pre-election levels, he added.</p>
<h3><strong>Potential Market Reactions and Economic Implications</strong></h3>
<p>Deepak Jasani, Head of Retail Research at HDFC Securities, also agreed that if election results deviate from expectations and the ruling BJP-led National Democratic Alliance fails to form a government, the markets can see a sharp downside. The reforms may get a setback, and the populist announcements by various political parties may take center stage, hurting market sentiments. There will be uncertainty about new reforms.</p>
<p>Bernstein, in its India strategy report, highlighted that the role of the government in facilitating orderly capital expenditure (capex) is high; hence, a return of NDA is favorable for that, while a change will likely deliver haphazard growth with the risk of a shorter upcycle with structural challenges after that for those linked to capex. Conversely, consumption may be more favorable in the case of opposition gaining strength, at least in the near term. The downsides to that will be high inflation and fiscal discipline going off-target.</p>
<h2><strong>Return of Populism in case of NDA not forming government</strong></h2>
<p>In case the NDA fails to cross the 270 seats milestone and BJP gets less than 240 seats, there will be a return of populism as per Bernstein.</p>
<p>There will be drastic effects on infra spending in the near term as per Bernstein. The funds will be diverted out of infra projects towards other social initiatives. The private sector will be pushed to participate in infra, which will lead to only the most viable projects emerging as others may get shelved.</p>
<p>Further, Bernstein highlighted that there will be a near-term decline in business sentiment. Tax breaks and subsidies for the poor may be financed by more taxes on corporates or the rich. Foreign Direct Investments will fall.</p>
<h2><strong>Long term outlook for Market still may remain intact</strong></h2>
<p>After the election, market focus will transition to valuations, likely restricting the market's upside potential, highlighted Damania. Nonetheless, he added that the data analysis indicates that regardless of which party forms the government, the market is consistently at a higher level than in the previous election. Therefore, Damania believes that emphasizing long-term gains over short-term volatility is of greater importance.</p>
<h3><strong>Conclusion</strong></h3>
<p>The Indian stock market is riding high on election optimism and a strong RBI dividend payout. However, any deviation from expected election results could lead to significant market volatility. While short-term fluctuations are anticipated, the long-term outlook remains positive, emphasizing the importance of strategic investments and market resilience.</p>