Exit polls hand UP to BJP, Punjab to AAP; but are the markets bothered?

The final outcome of UP will be keenly watched, analysts said, as it will pave the way how Bharatiya Janata Party (BJP) approaches and prepares for the general elections in 2024

Exit polls for the five states announced post market hours on Monday handed the most populous state in India – Uttar Pradesh (UP) yet again to Bharatiya Janata Party, while Arvind Kejriwal-led Aam Aadmi Party (AAP) is projected to rule Punjab. READ ABOUT IT HERE

The outcome of assembly polls across these key states – UP, Punjab, Goa, Mizoram and Uttarakhand – on March 10 comes at a time global headwinds in the form of geopolitical crisis between Russia and Ukraine, rising oil prices and the possible aggressive rate hike by the US Federal Reserve (US Fed) later in March have already taken center stage. 

Among the lot, the final outcome of UP will be keenly watched, analysts said, as it will pave the way how the ruling National Democratic Alliance (NDA) / Bharatiya Janata Party (BJP) approaches and prepares for the general elections due in 2024.

G Chokkalingam, founder and chief investment officer at Equinomics Research, however, says there are bigger factors for the markets to worry about than the state election outcome right now. The market reaction to the outcome, he said, will be short-lived.

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“The markets are not much worried about the outcome of the polls. There are two years still to go for the general elections. Historically, we have seen markets reacting negatively to state poll outcome (in the case of Bihar), but recovered lost ground soon. The outcome of a state poll cannot be taken as the judgement for the central election, though a negative outcome, like a loss in UP, can only trigger a knee-jerk reaction,” he said.

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Political pundits, however, have a different view point and suggest based on their findings that the outcome of these state polls, especially that of UP, may have a bearing on the general elections due in 2024.

“The Consumer Sentiment Index (CSI) survey captured consumer’s views. 50 per cent of the respondents strongly believe that the results of these five state elections will have a considerable impact on the 2024 national elections. These are the views of people residing across the nation and not just the election states,” said Pradeep Gupta, chairman and managing director, Axis My India - a leading consumer data intelligence company.

 

On the other hand, markets have lost considerable ground over the past one month with the S&P BSE Sensex and the Nifty 50 slipping around 8 per cent each. The carnage in the mid-and small-caps has been even more brutal with both these indices skidding 12 per cent and 14 per cent, respectively on the NSE during this period.

“Besides the overall outcome, the markets will keenly watch the margin of victory in UP. A thin margin of victory may prompt the BJP / NDA to go slow on the reform process and even look at excise duty cuts and a milder hike in auto fuel rates in the backdrop of rising crude oil prices. All this will be perceived negatively by the markets,” explains A K Prabhakar, head of research at IDBI Capital.

Gaurav Dua, head of capital market strategy at Sharekhan by BNP Paribas also shares a similar view and says a strong victory in UP elections would provide enough political goodwill to the central government to take bold decisions. 

“Given the rising global uncertainties a strong and confident central government would be a positive outcome from the equity markets point of view. However, the impact of any positive news from the state election the market will have to deal with macro headwinds and many near term challenges,” he said.