D-Street tense as BJP ride in big states seems bumpy

MUMBAI: Market sentiment is likely to be skittish on Monday as exit polls on Friday indicated that the Bharatiya Janata Party risks losing control of Rajasthan to the Congress and faces a close fight in Madhya Pradesh and Chhattisgarh. Counting in five state assembly elections —Telangana and Mizoram being the other two — will take place on Tuesday.

A good showing by the BJP will likely see stocks rising, analysts said.

The exit polls and a sharp drop in the US equity market on the back of trade tensions with China and a weaker-than-expected jobs report on Friday are likely to reflect in a lower opening in the stock market on Monday. “There could be some amount of nervousness given that the exit polls showed that the BJP is likely to lose Rajasthan while the Chhattisgarh and Madhya Pradesh state elections would be a close call,” said Sanjeev Prasad, co-head, Kotak Institutional Equities. “Also, there has been a sharp correction in the US market and the OPEC production cut is moderately higher than what markets expected, which is not good for India.”

The outcome of elections in the five states will be known on Tuesday. These polls are seen as an indicator of public sentiment ahead of the 2019 general election. Brokerage CLSA also said that BJP losing two of three bigger states — Chhattisgarh, Madhya Pradesh and Rajasthan — would be negative for market sentiment.

Nomura believes that a bad performance could imply that farm unrest is real as the three BJP-ruled states have a large agrarian population. That should also encourage cohesion among opposition parties, strengthening non-BJP forces before the national election, said Nomura.

Exit polls by prominent agencies showed that the incumbent Telangana Rashtra Samithi is likely to retain power in the state.

According to exit polls, Mizoram may see a hung assembly.

“There will be some nervousness in the market due to the global backdrop and uncertainty regarding the final numbers of the state elections,” said Rajat Rajgarhia, CEO, Motilal Oswal Institutional Equities.

The Nifty and Sensex gained close to 1% each on Friday, ahead of the exit polls, after three consecutive days of losses. Foreign portfolio investors have also been on edge, with flows being muted after purchasing shares worth more than Rs 6,000 crore in November.

They have net sold shares worth Rs 1,000 crore in the five trading sessions so far in December.

Some experts said global market sentiment will have a bigger bearing on the market rather than the exit polls.

“I don’t think the exit polls will have a bearing on the market as they are all over the place. However, markets will continue to be soft because of the weak US market,” said Rahul Arora, CEO, institutional equities, Nirmal Bang.

Market experts believe that failure by the US and China to reach an acceptable solution to end trade hostilities remains a real threat. The US has only deferred its decision to increase import duty on $200-billion Chinese imports to March 2019 from January after both nations decided to suspend trade hostilities on the sidelines of the G20 meeting earlier this month.

Analysts said an outcome in favour of the BJP could lead to a mild rally in the market. However, this will be constrained if global cues turn worse.

“Markets could see a mild rally if BJP wins Chhattisgarh and Madhya Pradesh but the extent of gains would depend on how things are globally and a strong rally if the BJP wins all the three states contrary to exit polls,” said Prasad.