What a chaotic week, and we’re back to square one.

Exit polls from the weekend pointed to a straightforward win for the BJP. On Monday the market sentiment was boisterous and celebrations began. When the counting began on Tuesday, markets went into despair. There was heavy selling from both FIIs and DIIs. The Nifty had its worst fall in almost 4 years. Yet, within a day markets began to regain their composure and it’s back to business as usual.

Why did the market change its mind? The rational participant knows that this election outcome still enables policy reform. Fiscal consolidation remains a priority and the India story has a lot of steam. After all, the India story is built on people, productivity, and policy.

Through this election season, investors have learnt one lesson: expectation setting is dangerous. Whenever expectations are extreme, even a moderate outcome is punished.

Investors must learn to moderate expectations and maintain composure. The focus must shift away from speculation towards policy. As the cabinet forms and portfolios are allocated, the next event to watch out for is the Budget.

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