Domestic brokerage JM Financial expects Prime Minister Narendra Modi-led Bharatiya Janata Party (BJP) to comfortably retain its majority in the ongoing Lok Sabha general elections but sees a net incremental loss of around 4 seats for BJP in its base case.

During 2019 general elections, the BJP won 303 seats.

The strategy of setting ambitious targets has worked in favour of the BJP, the brokerage says in a note.

However, the Opposition’s focus on local issues has been successful in gaining mindshare and is likely to convert to votes, it says. “The extent of damage in Karnataka will decide the tilt towards populist policy, going forward; we are building in a loss of 3-5 seats in the state. Among the major states, we expect votes to swing in Maharashtra (-8 seats), West Bengal (+4) and Tamil Nadu (+5 seats). Based on our assessment of major states on Pan India basis, we see a net incremental loss of 4 seats to 299 for BJP in our base case while our bear and bull case seat tally is in a narrow range of 290 to 310,” says JM Financial.

The brokerage says policy continuity will ensure opportunities in defence and capital goods space while valuation comfort is available in private banks and consumers.

Unlike in the past, JM Financial expects large caps to outperform small and mid caps in this post election cycle.

“Our assessment of the political landscape during the on-going general elections indicates that the BJP will comfortably retain its seat majority. We observed that the BJP’s strategy of setting an ambitious seat target became a talking point in absence of a strong wave, as was the case in 2014 and 2019; we believe this strategy was tactfully aimed at warding off complacency among BJP and NDA (National Democratic Alliance) cadres,” the brokerage says.

“While the undercurrent of local issues raised by the opposition is noticeable this time, we believe that the impact is likely to be felt more in states like Karnataka and Haryana, reflecting in lower seats for the BJP,” it adds.

“Our interaction with locals indicates that BJP’s political experiment in Maharashtra did not go down well with voters. A section of the voters labelled the split in the Shiv Sena and the NCP (nationalist Congress Party) as unethical; if this sympathy wave plays out, it is likely to favour the Shiv Sena (Uddhav Thackeray) faction and help the MVA (Maha Vikas Aghadi) alliance secure a majority of the Lok Sabha seats in the state. The BJP’s target of securing double-digit seats in Tamil Nadu looks optimistic due to lack of local infra vs. DMK; we are building in 5 seat wins in the state,” says JM Financial.

The brokerage says its assessment of lower margin (<20,000 votes) seat wins across India revealed that out of 52 seats, BJP had the highest (23) such seat wins while 9 seats fell in the Congress’s stable. “We believe that there is high probability of flipping in these seats,” it says.

JM Financial prefers large caps due to valuation comfort. “As policy continuity is in our base case, we expect healthy gains to follow election results on 4th June, and we believe any dips should be bought into,” it says. The brokerage says volatility Index (VIX) has peaked in this cycle.

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