The results of the assembly elections in these key states – UP, Punjab, Goa, Mizoram and Uttarakhand – on March 10 came amid a geopolitical crisis amid the global adversity. Russia and Ukraine, rising oil prices, and the aggressive rate hike expected by the US Federal Reserve later in March has already taken center stage. The exit polls of five states were announced after the market opened on Monday. Uttar Pradesh, the most populous state, is set to be carved out by the Bharatiya Janata Party (BJP), while the Arvind Kejriwal-led Aam Aadmi Party is projected to rule Punjab.
Analysts say that the government will have an eye on the result of UP MarketBecause it will pave the way for how the ruling NDA/Bharatiya Janata Party approaches and prepares for the general elections to be held in 2024.
Amnish Agarwal, Director, Institutional Equities at Prabhudas Lilladher, said: “The state elections are being viewed as a semi-final before the 2024 general elections, which will have some impact on the direction of economic reforms and the visibility of the Modi-led government beyond 2024. Given that it includes UP and a state in the Northeast makes it very important.”
Ukraine-Russia war – a big problem
Unlike earlier state elections, this time a major difference is the ongoing war in Ukraine. With no reduction in the wider geopolitical and economic effects of the Russian invasion and the event, there is the potential for prolonged disruption in financial markets. So the impact of the state’s polling results on the market this year may be muted. Tradingo founder Partha Nyati said: “As of now, the market focus is on a geopolitical issue, so the outcome of the election results may have some impact on the market for only 1-2 days.”
What impact could these voting results have on D-Street?
Polling result days usually see high volatility. In the days leading up to the state election results of 2007 and 2012, Nifty saw intra-day moves of over 2 per cent and 3 per cent respectively. In 2017, the intra-day move was small. Hence, some major changes can be expected on the day of election results, i.e. tomorrow, 10th March.
However, experts expect some volatility, but this will be temporary, as the market usually focuses more on national elections rather than states. “While state-level elections raise concerns about uncertain results, they do not materially affect the overall earnings trajectory of the corporate sector. Therefore, there may be some short-term market impact of the state election results, but we believe long-term investors will ignore these election results,” said Abhay Agarwal of Piper Serica.
“Equity markets do not like uncertainty and prefer stability. If the market feels that the government’s policies will remain consistent and investor-friendly, it will cheer the election results, no matter who wins. If the market feels that the assembly election results will bring a change in the direction where the government is forced to increase social spending, the market will take it negatively,” explained Nishit Master, portfolio manager, Axis Securities.
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