Kotak's advice to stock market investors ahead of poll results: Diversify portfolio as market may fall over 20%

Kotak Alternate Asset Managers' chief investment strategist Jitendra Gohil warned that the stock market may fall over 20 per cent and will take time to fully recover if the Bharatiya Janata Party (BJP) fails to form the next government. Although the probability of this outcome is less, Jitendra Gohil said investors should diversify portfolio to reduce risks ahead of the election results on June 4.

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"In our view, there is a high probability that the NDA will form the government with the BJP getting the full majority. Elections will be over on 1st June and the market will react to exit polls on 3rd June (Monday). We note that in the past two elections, the BJP got significantly higher seats compared to poll predictions," he said.

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He added that anti-incumbency, formal job creation and allegations of misusing government agencies like ED and CBI may negatively play for the BJP “however, more support from the women's voter base, excellent handling of the economy in difficult times with good control over inflation and rupee, assertive foreign policies and above all weakened opposition should outweigh the reduction in vote share, in our view.”

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Reflecting on different scenarios, he said, “What if the BJP gets less than the full majority mark and forms a coalition government with NDA partners? In this scenario the market may correct 5-10 per cent in our view. However, in the medium term it won't make much of a difference and the market may recover. However, in case NDA fails to form the government - probability is thin though- the market may fall 20 per cent-plus and will take time to fully recover.”