India markets face an 'inevitable' correction if Modi's election win disappoints, Bernstein says

India's stock markets started the year in record-high territory, much of it supported by pre-election optimism — but as the country kicked off its weeks-long election, Bernstein warned that a market correction could be in place.

Market players have been pricing in a victory for Prime Minister Narendra Modi's ruling Bharatiya Janata Party.

Modi, who has been prime minister since 2014, is seen as a market-friendly candidate. Under his leadership, India became the world's fifth-largest economy with a GDP of $3.7 trillion and is now aiming to become the world's third-largest by 2027.

India's benchmark Nifty 50 index has risen 3% so far this year after gaining more than 20% in 2023, its eighth straight year of gains.

However, the index has fallen around 1.7% from its recent record closing high on April 11 amid geopolitical concerns, such as escalating Middles East tensions that have roiled global markets.

"A pre-election euphoria is building up, where the previously set expectations of continuity of power are further augmented by the ruling party coalition possibly winning over 400 seats," said Bernstein analysts, Venugopal Garre and Nikhil Arela, in a client note.

India's 2024 general elections kicked off on Friday as voters head to the polls in the world's largest democratic election to decide whether Modi will secure a third term in office.

Nearly one billion eligible voters will decide who fills the 543 contested seats in the Lok Sabha, the lower house of the Indian Parliament. The party or coalition that wins at least 272 votes will form the government.

Due to "sky-high expectations" of a strong mandate for the BJP and its coalition, "even repeating the historic performance of 2019 may not be enough this time," the analysts