Ridham Desai, the managing director of Morgan Stanley India, expressed his viewpoint at the CII Global Economic Policy Forum 2023, suggesting that if the Lok Sabha election results deviate from market expectations, the markets might experience a drawdown ranging from 25-30%.
He stressed that the markets typically factor in continuity and strength in the anticipated government, and a deviation from this expectation could lead to significant volatility.
“A lot of institutional investors are turning up who have very large portfolios and they want to hedge the May 2024 election event. I have opined that the markets will price in continuity and strength in the next government.
Historically markets do not want change in governments. However if the country produces a result which is contrary to that expectation, then we have to be prepared for a lot of volatility. I opine that we could even see a 25-30% drawdown if Lok Sabha election results are contrary to market expectations,” Desai stated.
Underscoring the significance of the capital market in economic development, Desai stated that a thriving capital market is a crucial driver of economic progress and should not be underestimated.
He pointed out that for India to achieve the necessary 6.5%-7% growth to accommodate the annual influx of 10 to 15 million people entering the workforce, a robust stock market is essential. Desai argued that without adequate private risk capital, India would struggle to generate the required level of growth.
Official data released on Thursday indicated that India’s economy grew by 7.6% in the September quarter, marking an increase from 6.2% during the corresponding period last year.
To delve deeper into the discussion, watch the accompanying video.