Home / Market / Stock-market-news /  How Sensex, Nifty could react to state election results today

The counting of votes for five states will begin at 8 am while BSE and NSE will open for regular trading today from 9:15 am. In another uncertainty for markets, RBI governor Urjit Patel abruptly resigned on Monday. This announcement came in after market hours on Monday. Overnight, the Wall Street ended a volatile session slightly higher with Dow at one point down 500 points. Asian markets are mostly lower in today’s trade. After exit poll results predicted a close fight between ruling BJP in key states of Madhya Pradesh and Chhattisgarh, the Sensex fell 700 points on Monday. A selloff in global markets also weighed on domestic markets.

In a note, Kotak Institutional Equities said that besides the outcome of assembly election results, oil prices and China-US trade issues will act as overhangs for Indian markets. In the same note, which was published before Patel announced his resignation, Kotak Institutional Equities, forecast different scenarios for the Indian market, based on election results.

The brokerage in the note said it expects markets to find some support if the ruling BJP is able to retain power in the three states of Madhya Pradesh, Chhattisgarh and Rajasthan. Even if the BJP wins in two of these three Hindi heartland states, Kotak Institutional Equities expects markets to gain some support. “In our view, a 3-0 (BJP winning Chhattisgarh, Madhya Pradesh and Rajasthan) or 2-1 (BJP winning Chhattisgarh and Madhya Pradesh) score for the BJP may result in a moderate market rally, subject to global developments, with the market ascribing a higher probability of the BJP winning the national elections in April-May 2019," the brokerage said in the note.

Exit polls indicate a tight race between BJP and Congress in Madhya Pradesh and Chhattisgarh while they give the Congress an edge in Rajasthan.

“However, a 0-3 (BJP losing all the three states) or 1-2 score (BJP losing Madhya Pradesh and Rajasthan) for the BJP may result in a sharp market correction as the market will likely take a dim view of the BJP’s prospects in the next national elections, given the large contribution of these three states to the BJP’s 2014 win," the brokerage said.

Market observers will also be closely watching the dollar-rupee and bond markets in the wake of Patel’s resignation. Lakshmi Iyer, chief investment officer for fixed income at Kotak Mahindra AMC, said: “Markets were not prepared for this. Tomorrow (December 11) is also the political uncertainty day. I don’t think the markets may take this very kindly, especially dollar-rupee."

“I was not expecting this. From a markets standpoint, it might rebound, that’s a different thing, but for a knee-jerk reaction, I think it’ll be negative for dollar-rupee and, therefore, logically for bonds also. We’ll have to wait and watch," she added.

Rupee forwards posted their biggest daily slump in more than five years on Monday, after RBI chief Urjit Patel resigned for “personal reasons". The one-month contract was last quoted at 72.62 per dollar compared to a spot market rate of 71.35 per dollar.

Coming to the global backdrop, Brent crude oil prices have risen from recent lows after producer club OPEC and some non-affiliated suppliers last Friday agreed to a supply cut from January. US bank Morgan Stanley said the cut was “likely sufficient to balance the market in first half of 2019 and prevent inventories from building".

Oil prices have fallen sharply since October on signs of a global economic slowdown, with Brent losing almost 30% in value. This had triggered a 5% rally in the Nifty in November.

Markets also expect China-US trade disputes may linger for longer than expected due to the recent arrest of the CFO of Huawei. This may impede the efforts being made by China and the US to find amicable solutions for their longstanding trade disputes over the next few weeks, say analysts. The leaders of China and the US formally decided to suspend trade hostilities on the sidelines of the recent G20 meeting in Argentina.

Concerns over global growth and China-US trade disputes have led to a global selloff. US markets for the week ended Friday had recorded their biggest fall since March.

Warning of higher volatility, Rahul Sharma, senior research analyst at Equity99, said investors should stay cautious ahead of the assembly election results. Mustafa Nadeem, CEO, Epic Research, said, “The Opec meet and the arrest of the global CFO of Huawei have unnerved investors. Domestic state election results may just be the fuel for a short-term volatility."

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