Market Alert: Nifty Could Slip 7% if NDA Fails in Bihar, Warns InCred

In a stark warning to investors ahead of the Bihar Assembly Elections 2025, InCred Equities has projected a potential 5-7% correction in the Nifty 50 index should the ruling National Democratic Alliance (NDA) suffer a defeat, attributing the downturn to a so-called "coalition discount" that could usher in policy uncertainty and market jitters. The elections, slated for the 243-member state assembly and widely viewed as a litmus test for Chief Minister Nitish Kumar's leadership, are anticipated to wrap up with results that may diverge from exit polls favouring an NDA victory. This forecast comes as the Indian equity markets, already navigating global headwinds, brace for heightened volatility across benchmarks, with foreign portfolio investors (FPIs) likely to initiate outflows and bond yields climbing amid fiscal risk apprehensions. Historical precedents, such as the 6% single-day plunge in the Nifty following the 2024 general election outcomes, underscore how shifts from single-party dominance to coalition dynamics have routinely rattled investor sentiment.

The underlying triggers for such a market reaction hinge on the prospect of political realignments that could ripple to the national level, potentially seeing Nitish Kumar or allies like Andhra Pradesh's Chandrababu Naidu pivot toward an opposition Indian National Developmental Inclusive (INDI) alliance government, complete with rotational leadership arrangements—such as alternating terms every 2.5 years. InCred Equities highlights that the Bharatiya Janata Party (BJP) might counter by engineering a split in Kumar's Janata Dal (United) through loyalist factions, further amplifying short-term instability as markets grapple with doubts over policy continuity, reform momentum, and governance predictability. This scenario could precipitate capital flight reversals, exert downward pressure on the Indian rupee, and dampen enthusiasm in high-growth sectors like defence, infrastructure, and public sector undertakings (PSUs), which have thrived under streamlined decision-making.

Sectoral divergences are expected in the aftermath, with consumption-driven, regional, and small-to-medium enterprise (SME) equities potentially gaining traction from a more decentralised fiscal framework that empowers state-level initiatives. InCred's analysis draws parallels to past coalition eras, where initial disruptions gave way to adaptive growth models, suggesting that while near-term turbulence may erode India's premium for political stability, medium-term risks could abate if the new setup upholds commitments to infrastructure outlays, macroeconomic prudence, and aversion to populist measures. Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, echoes this caution, noting that the market has already priced in an NDA win, leaving little upside from political positives but ample downside if results surprise to the contrary.

Also Read: Eicher Motors posts 25% jump in Q2 profit, revenue in line with estimates

For investors, InCred Equities advises a phased approach: fortifying portfolios against immediate volatility and FPI exits in the short term, while eyeing medium- to long-term opportunities in a post-correction rebound, particularly among mid-cap and regional growth plays. The firm posits that disciplined market participants could view the dip as a "cyclical accumulation window", given historical patterns of swift recoveries once governance clarity reemerges—potentially catalysed by a robust Bihar-centric development blueprint. As the polls unfold, this outlook serves as a timely reminder of the interplay between regional politics and national market fortunes, reinforcing the need for vigilance in an election-sensitive calendar that extends into 2025.

Also Read: Why Infosys’ Mega Buyback May Not Be a Windfall for All? Nithin Kamath Explains the Tax Twist