June 4 will be a big day for the financial markets, with fund managers and analysts expecting three reactions arising out of three possible outcomes of the general election results. Each of these is related to the fate of the Narendra Modi government, which the markets love.

If the ruling Bharatiya Janata Party gets more seats than 2019, equity markets will rally in anticipation of growth-supportive economic policies, such as spending on infrastructure and a push for the manufacturing sector, Rajesh Bhatia, chief investment officer of ITI Mutual Fund, told Reuters.

Benchmark indices S&P Sensex and NSE Nifty 50 could rally 4-5 per cent in this scenario, Abhishek Goenka, founder of IFA Global, a forex consultancy and asset management firm, was quoted as saying.

The rupee could appreciate to around 82.80 levels against the dollar from 83.32 at the close on Thursday, while the benchmark bond yield may dip to 6.90 per cent-6.92 per cent from near 7 per cent currently, VRC Reddy, treasury head at Karur Vysya Bank.

James Thom, senior investment director of Asian equities at abrdn, based in Singapore, told Reuters that PM Modi’s return is viewed by the market as a positive because it demonstrates political stability and implies policy continuity.

In case the BJP-led alliance wins fewer seats than in 2019 but cross the key 272-mark and return to office, there may be some short-term volatility but market will settle quickly. For it seems to have factored in the reduced the margin of victory for the ruling coalition, said Gaurav Dua, head of capital market strategy at Sharekhan, a brokerage.

Umeshkumar Mehta, chief investment officer at Samco Asset Management, agreed with this viewpoint, saying that a seat count below 300 for the current government will not alter the market’s trajectory.

The rupee and bond yields may not see a significant reaction in this case either, said Vijay Sharma, senior executive vice president at PNB Gilts.

What the markets fear is an opposition-led coalition government. The possibility of a coalition steered by the Congress could lead to a sell-off in markets and a rise in bond yields until the new government’s policies become clear.

The market is hoping for continuity, so another party winning could lead to a knee-jerk reaction, said Mittul Kalawadia, senior fund manager, equity, ICICI Prudential Mutual Fund.

“Whether in the long run things are positive or negative we will know later, but in the short-term any change which impacts policy level continuity will be a big negative,” Kalawadia said.