The recent strength in India’s key stock market indices indicates that market participants are pricing in a victory for the Bharatiya Janata Party in Uttar Pradesh, according to an stock market analyst.
India’s largest state has been busy electing its next legislative assembly for almost a month. The first phase of elections in the state took place on Feb 11 and the seventh and the last phase will take place tomorrow.
“The markets are keenly awaiting the outcome of the exit poll announcements that are expected in the next few days and the street has already factored in a BJP win in the key state of Uttar Pradesh,” said Mayuresh Joshi, fund manager at India’s largest retail-focused broker house Angel Broking.
Several companies have appointed agents outside hundreds of polling booths in the state to conduct ‘exit polling’ — asking people who they voted for, as they come out of the booths.
The data is tabulated and kept with these companies to be publicly released on March 9, when all polling activities stop.
While their publication is prohibited by the election commission, the data is often used for other purposes that do not involve publication, and markets generally get wind of what is happening in the polls.
As such, if the final results, which will be released this weekend, turns out to be different from the projections, the markets could face volatility, Joshi added.
“Any disappointment however on this front can cause significant volatility and disruption in the positive momentum that has been created and can have a short term negative impact in the way the markets react,” Joshi added.
Key stock market indices in India hit their lifetime highs yesterday, with the Nifty closing at 8,963 — close to the psychologically important 9,000 mark.
The previous important milestone — 8,000 on the Nifty — was crossed two-and-a-half years ago in the euphoria surrounding the election of a Narendra Modi-led government at the center.
However, since then, the markets have largely swayed sideways due to various domestic and global factors. The Indian economy, meanwhile, seemed to be caught in a slowdown with corporate earnings and revenue growth failing to live up to expectations.
Many investors are worried that the incumbent government at the center may not enjoy the kind of support that it seemed to in the initial stages. The fear has gained strength in light of poor showing by the BJP in several crucial state elections held recently.
The Uttar Pradesh election is seen as a crucial litmus test for the party’s current leadership as not only does the state account for 15% of all Lok Sabha seats, but also reflects the mood of the electorate throughout the Hindi belt.
A victory for BJP in the state, coming in the wake of difficulties and cash problems faced by the public due to anti-tax-evasion measures, would also bolster the case for further tough economic reform measures.
“The markets might just gyrate around these levels till we get further clarity in terms of the state election results which can act as a positive or negative trigger point for the markets, depending on the actual outcome,” Joshi added.