Sensex swings 500 points on Karnataka verdict; rupee weakens to 68

The index had soared to a fresh three-month high of 35,994 as early trends showed the BJP was set for a clear majority in the 224-member Karnataka Assembly

The benchmark Sensex came off nearly 500 points from the day's high after the Bharatiya Janata Party (BJP) fell short of touching the majority mark, while the opposition parties scurried to stitch together a coalition.

The index had soared to a fresh three-month high of 35,994 as early trends showed the BJP was set for a clear majority in the 224-member Karnataka Asembly. The Sensex closed at 35,544, down 13 points from the previous day's close, and 450 points off the day's high. The Nifty ended flat at 10,802, after climbing to 10,929. Both the indices were about one per cent shy of the all-time highs they had touched in late January.

Besides political uncertainty thrown up by the Karnataka polls, worsening domestic macro conditions also weighed on investor sentiment. The rupee weakened to Rs 68 against the dollar for the first time in 16 months. The yield on the benchmark 10-year government security breached 7.9 per cent in the wake of global Brent crude oil prices nearing $80 a barrel.

The Street was keenly studying the polls in the key southern state, this being a harbinger of the 2019 general elections. The high vote share for the Congress, the main opposition party, in the Karnataka polls poses a challenge for Prime Minister Narendra Modi to retain power in 2019, concluded market players.

The Karnataka verdict will give substantial validation to the concern that the BJP tally in the next general election could reduce, said Vinod Nair, head of research, Geojit Financial Services. He said the market would now shift its focus to the economic parameters that have been "unpleasant" in recent times.

Overseas investors sold shares worth Rs 5.2 billion on Tuesday, while domestic institutions were net buyers, making transactions to the tune of Rs 5.3 billion, provisional data released by stock exchanges showed. “Investors generally like a stable government, and a decisive mandate is something markets always take positively. While the BJP may have fallen short of majority, it has emerged as the single-largest party. The trend could help them in the upcoming general elections,” said Siddharth Khemka, head of retail research, Motilal Oswal Securities.

The broader market underperformed the benchmark marks, with the BSE mid-cap and small-cap indices declining 0.81 per cent and 0.65 per cent respectively. On the BSE, 1,003 stocks ended with gains, while 1,647 ended with losses. Among the Sensex components, Tata Motors fell the most at 4.3 per cent, followed by the Coal India, which declined 2.1 per cent. Banking shares ended weak after the Punjab National Bank (PNB) reported a huge quarterly loss. Shares of SBI declined 1.9 per cent, while PNB ended 3.8 per cent lower.