Markets yet to factor in state polls
Markets have not yet factored in a major upset for the ruling Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) in the coming elections in Chhattisgarh, Rajasthan, Madhya Pradesh, Mizoram, and Telangana, claim analysts.
These state elections are being viewed as a run-up to the Lok Sabha elections, slated for May next year. Experts believe these will test the popularity of the government and its policies amid rising crude prices that might lead to inflation, turmoil in the banking sector and non-banking finance companies, and a falling rupee.
“The markets are gradually realising that it will not be easy for the NDA to secure a simple majority in state elections. Given domestic and global cues, the markets are likely to remain choppy and are yet to fully price in a major upset for any pan-Indian political party in the coming elections,” said G Chokkalingam, founder and managing director at Equinomics Research.
A recent survey predicted that the Congress may return to power in Madhya Pradesh and Chhattisgarh after nearly 15 years. Rajasthan, currently ruled by the BJP, is also likely to be a tough challenge for the ruling party; since 1998, the electorate in the state has alternated between the two parties every election.
This time, experts claim, Chief Minister Vasundhara Raje might be facing strong anti-incumbency.
U R Bhat, managing director at Dalton Capital, said the fortunes of the markets were linked to the outcome in Rajasthan. “There is nervousness in the markets, as the recent opinion polls do not suggest a return for the ruling party. In other states, it might be a close fight. In a worst-case scenario, the Nifty50 can slip to 9,700 levels,” he added.
After a 2017, during which the 50-share Nifty rallyed 27 per cent, markets have registered a 3 per cent fall on a year-todate basis in 2018, touching 10,200 levels. Other emerging markets such as Brazil, Taiwan, and Thailand have also seen a correction during this period, but outperformed India.
“Recent developments, coupled with major elections in the next nine months, are likely to keep market volatility high. Despite the recent correction, the equity market remains vulnerable on both valuation and earnings concerns. Despite a 16 per cent correction in 2018, the rupee remains under pressure to depreciate. It can reach 78 per dollar in the next six-nine months,” said a recent report from Anand Rathi Institutional Equities. In a highly volatile session, valuebuying by investors in the recently battered banking, oil and gas, and automobile stocks reversed the threesession losing streak, helping the Sensex and Nifty to close on a positive note on Monday.
The Sensex swung over 660 points both ways on alternate bouts of selling and buying.
The 30-share Sensex touched a high of 34,636.43 on the back of sustained buying by domestic institutional investors, but later turned choppy and hit a low of 33,974.66 as selling pressure gathered momentum.
However, amid buying towards the fag-end, it recovered to close the day higher by 97.39 points, or 0.28 per cent, at 34,474.38.
The 30-scrip gauge had lost 2,149.15 points in the previous three straight sessions.
The 50-share NSE Nifty, too, recovered by 31.6 points, or 0.31 per cent, to end at 10,348.05. During the session, it moved between 10,198.4 and 10,398.35. Besides value-buying, covering-up of short positions by investors also aided the recovery in the market. Top gainers in the Sensex kitty include YES Bank climbing 7.08 per cent, followed by Reliance Industries at 5.53 per cent.
On Monday, foreign portfolio investors (FPIs) sold shares worth ~18 billion, taking their month-todate selling tally to ~122 billion (about $1.6 billion). Domestic investors on the other hand net-bought shares worth nearly ~20 billion. In the past five sessions, mutual funds have invested nearly ~95 billion into stocks.