Analysts see volatility for stock market due to state elections; key things to watch out for.

Ahead of the crucial state elections scheduled for tomorrow, the investor sentiment took a beating today as exit polls predicted that the Bharatiya Janata Party risks losing control of Rajasthan to the Congress, and faces a stiff competition in Madhya Pradesh and Chhattisgarh. According to global banks brokerage firms Nomura, Deutsche Bank and CLSA, while the exit polls might have got BJP thinking on its strategy for the elections, the final outcome will be very different. 

In an interview to ET Now, Harsha Upadhayaya of Kotak AMC said that election outcome will weigh on the sentiment in the short run, and stock market will continue to remain volatile.  “In the very short-term, liquidity and investor sentiment drag the markets, but in the longer term usually fundamentals take over. As far as we are concerned, a lot of factors impacting economy have turned favourable now. The only factor left out is the state elections, followed by its likely impact on the general elections. Our sense is during this period, the stock market is likely to continue to remain volatile,” Harsha Upadhaya of Kotak AMC told ET Now.  

“Generally, state election outcomes have been known to be a poor leading indicators of general elections. BJP’s drubbing to mean that farm unrest is real; increase in MSP hasn’t yielded political dividends,” global firm Nomura said in a note. CLSA said that anti-incumbency could weigh against the ruling party BJP in the crucial states. “If the BJP ends up losing 2 of these 3 states, it will be a negative for market sentiment. Farmers’ demands & jobs are going to be the top 2 issues for the 2019 elections,” noted CLSA.

According to Motilal Oswal, the exit polls suggest that opposition unity will be an important factor to consider before the crucial Lok Sabha elections. “Another implication of this verdict, assuming it mirrors the exit polls will be on Opposition unity front. Opposition parties have been trying to forge a grand alliance to fight against BJP in the forthcoming Lok Sabha elections,” it said.

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