Mumbai: After surging over 400 points, India’s benchmark Sensex Index on Tuesday erased gains in the afternoon trade as investors have turned cautious awaiting clear trends of Karnataka assembly elections. The rupee and bond prices also declined.

Latest trend in Karnataka election results shows the Bharatiya Janata Party (BJP) winning nearly 105 seats—short of 112 halfway mark needed to form government. The Siddaramaiah led-Congress party and Janta Dal (Secular), or JD(S), are leading in 115 seats, according to Mint.

According to a ET Now report, Congress to approach JDS for alliance in Karnataka.

At 2.12pm, the Sensex rose 0.18%, or 64 points, to 35675.81 points. The National Stock Exchange’s 50-share Nifty advanced 0.22%, or 24 points, to 10,839 points. Earlier, the markets gained over 1% points.

Market Live: Sensex, Nifty pare gains, pharma, PSU bank stocks top losers

The home currency was trading at 67.83 a dollar, down 0.46% from its previous close of 67.52. 10 year bond yield was trading at 7.867% from its previous close of 7.825%. Bond prices and yields move in opposite directions.

Early trends indicated, BJP was leading in 112 seats, according to the Election Commission of India’s website. The Congress party, was ahead in 66 seats. Janata Dal (Secular), was ahead in 40 seats in the state.

“One known unknown uncertainty is over for the market sentiments, however external perils are still bigger headwinds", said Soumyajit Niyogi, associate director, India Ratings and Research Pvt. Ltd .

Investors are also cautious due to higher inflation which fears hike of interest rates by Reserve Bank of India sooner than earlier.

Consumer price inflation rose 4.6% in April faster than the 4.4% of Bloomberg consensus. Wholesale price index (WPI)-based inflation shot up 3.18% in April from a year ago higher than 2.9% median estimate in a Bloomberg survey of 28 economists.

“(Higher inflation) validate our expectations for the RBI policy committee to veer towards a hawkish stance in June (small probability of a pre-emptive hike) and pave the way for a 25bp increase in August. With another move likely in 4Q18, we see room for cumulative 50bp hikes in FY19. Slow progress on the banks’ bad asset resolution and a gradual turnaround in growth suggest that an aggressive hiking cycle is unlikely" said Radhika Rao economist at DBS Bank Ltd.

Analysts also fear that government may not be able to stick to its fiscal deficit target for the year due to surge in crude oil prices and expectations that it may adopt populist measures ahead of the general election next year.

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