Amid the uncertainty over the results of Lok Sabha elections, leading to volatility in the stock market, global wealth management major UBS foresees BJP retaining a single-party majority.

It is expecting policy stability and possible reforms, which could boost Indian markets.

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However, any unexpected outcome might initially dampen sentiment due to political instability and policy uncertainty, potentially leading to short-term market fluctuations and revisiting pre-NDA equity levels, Swiss-headquartered UBS said.

Apart from the assumption of the BJP retaining a single-party majority, the brokerage firm also considers three other scenarios. In the first scenario, BJP forms a government with the NDA (> 272 seats), but without a single-party majority.

In this case, the markets may be less confident about policy stability, with slower fiscal consolidation. UBS expects a mixed impact on financial markets.

The second assumption is that the hung parliament scenario (NDA < 272 seats) could bring higher market uncertainty and prolonged political negotiations. The lag in reform implementation and risks of policy paralysis could negatively impact financial markets. Further stating the third scenario, it said, the government scenario (coalition INDIA > 272 seats) may lead to significant market uncertainty and abrupt policy changes. In this case, reversal of some NDA reforms and sharp knee-jerk reactions in financial markets is anticipated due to government change uncertainty.

UBS notes election impact varies but tends to fade over time. They see equity weakness as buying opportunities and view medium- to long-duration bonds favorably, especially if yields rise post-election.

Notably, as per the data available with the depositories, the foreign investors have pulled out a massive Rs 22,000 crore from Indian equities so far this month.

Foreign Portfolio Investors (FPIs) witnessed a net outflow of Rs 22,047 crore from equities this month, till May 24.

Experts have believed that going forward, as clarity emerges on the election front, the FPIs are likely to buy in India, since they cannot afford to miss the post-election results rally.