Karnataka election impact on stock markets: Sensex, Nifty likely to remain unaffected

The market is unlikely to see major fall following the Karnataka polls, which saw Bharatiya Janata Party (BJP) falling short of majority mark to form the government. With election results behind it, the Street will focus on much bigger issues such as rising crude prices, depreciating rupee, climbing inflation and the US rate hike, according to market participants.

Although the election outcome may not stir a bear hug in the near term, volatility will keep investors on the edge.

“Other macro factors such as uncertainty due to rising interest rates, depreciating rupee and higher crude prices will add to market volatility in the medium term. Markets will be volatile in 2018 due to elections in other states and political developments. 2018 will be different from 2017 and poll outcomes will be closely watched by investors,” said Jagannadham Thunuguntla, senior vice-president and head of research, Centrum Broking.

However, some market experts fear that equity markets may see a sharp fall in early trades on Wednesday, as uncertainty over the BJP’s failure to get a majority could dampen investor sentiment for a while.

“A BJP win in Karnataka elections would have cheered the markets in a big way, but with the probability of a Congress-JD(S) alliance looming, markets may see a fall of around 250-300 points in early trade today. However, we don’t see the poll outcome dominating the market sentiment as the momentum will shift to other global and domestic economic factors,” said A K Prabhakar, head of research at IDBI Capital.

Jayant Manglik, president, Religare Broking Ltd, said the ongoing corporate earnings season and global developments are likely to dictate the market trend in the near term. “With more results scheduled in the next 1-2 weeks, stock-specific volatility is likely to remain high,” he said.

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“Behaviour of crude oil prices and currency movement will be closely monitored by the market participants. Traders should strictly hedge their leveraged positions,” he said.

Although BJP emerged as the single largest party, it failed to cross the half-way mark, thus increasing the likelihood of a Congress-JD(S) alliance, said Manglik.

On the Karnataka election impact on markets, Siddharth Khemka, head of retail research, Motilal Oswal Securities, said, “Investors generally like a stable government and a decisive mandate is something markets always take positively. Going by the last few weeks’ trends, markets were factoring in a decisive win for BJP. While they may be short of the majority, BJP has emerged as the single largest party and that trend is something that could help them in the upcoming general elections.”

Even as the outcome of Karnataka state elections may not prompt investors to immediately trim their equity holdings, analysts caution that traders will be closely following results in other key state elections during the year, as the poll outcome would be an indication of the ruling central government’s performance in the general elections in 2019.

By Prasanna Deshpande, DNA Money