Markets fall to 5-week lows; Bihar, Fed weigh

Volatility looms as market may react to exit polls

The country's benchmark indices fell about a per cent, while the broader market saw a sharper cut on Thursday amid weak global markets, after a statement by US Federal Reserve Chair Janet Yellen pointed to a rate rise in December.

Sentiment also remained weak, as investors awaited the results for the Assembly elections in Bihar, the polling for which ended on Thursday.

The benchmark Sensex on the BSE Exchange fell 0.94 per cent, or 248.7 points to end at nearly 26,304, its lowest close since October 1. The broad-based Nifty 50 lost 84.75 points, or 1.05 per cent to about 7,955.

Both the indices have ended with losses in eight of the last 10 trading sessions and have declined over four per cent during the period. Poor second quarter numbers announced by certain big companies have weighed on the market over the past few weeks.

Market players are pinning hopes on a victory of the Bhartiya Janata Party (BJP) in the Bihar polls, as it will boost Prime Minister Narendra Modi's efforts to control the Rajya Sabha of parliament and push ahead with several stalled economic proposals.

"We do see further share price volatility ahead of the Bihar elections (results) on 8 November. The result seems too close to call but the impact should both significant and short-lived. Bihar is important because it holds the fourth highest number of seats in the Rajya Sabha," said Societe Generale, in its Asia equity strategy report.

The markets on Friday are expected to react to the exit polls, which were due post Thursday's market close.

"While Bihar polls will not impact national politics, as PM Modi commands a majority in the Lok Sabha, they will influence the market's perception of reforms. We continue to advise investors to monitor three event risks: Bihar polls; first Fed hike and earnings turnaround," said Bank of America Merrill Lynch, in a note.

Even though the US Fed chair Yellen on Wednesday pointed to a possible interest rate "lift-off" in December she has reiterated that any increase would be slow.

According to provisional data, foreign investors net-sold shares worth nearly Rs 1,000 crore on Thursday.

The market breadth on Thursday remained weak with two declining stocks for every one advancing. Also, the broader BSE 500, BSE Midcap and BSE Smallcap index underperformed the benchmark Sensex.

"The market is not very optimistic of the chances of the ruling National Democratic Alliance (NDA) and that's why we are seeing some selling pressure. Even if the NDA doesn't win, the extent of the defeat matters a lot. If it's just a few seats here and there, the market might digest it. But if it's a landslide for the other side, then it will be serious," K Subramanyam, co-head of equity advisory at Altamount Capital Management, said to Bloomberg.

According to Bloomberg, only 13 of the 19 Sensex components that have reported earnings have matched or beaten estimates, data compiled by Bloomberg show.

Earning disappointment has seen the country's benchmark indices underperformed their emerging market peers in October, narrowing the valuation gap. The Sensex is down 3.7 per cent this year and trades at 15.5 times projected earnings, versus the MSCI Emerging Markets Index's multiple of 11.5.