Exit polls predict BJP win in UP, but Dalal St euphoria to fade away soon : 10 Mar 2017

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Exit polls have predicted a victory for the Bharatiya Janata Party (BJP) in the key state of Uttar Pradesh (UP) that is being dubbed as the semi– final to the 2019 general elections, and appeared to be too close to call.

Over the past few sessions, the markets have been moving sideways, consolidating the 9% gain made thus far in calendar year 2017. Analysts say the outcome could create distractions (or positives) for the government and will be interpreted as a referendum on the government’s demonetisation drive.

Here is a quick compilation of what the leading market experts think about the possible outcome and its implication for the economy and markets:

The exit polls have predicted significant improvement for the ruling party at the Centre. If this prediction becomes true, it could be sentimentally positive for the equity markets for a week or so. However, in our view, fundamentally speaking, whether the ruling party wins or loses, it doesn’t have significant relevance for the markets.

The ruling party has a comfortable majority in the Lok Sabha to rule the country for the next two years, which is a long time for the stock markets.
Of course, the elections to the UP state are relevant for attaining the goal of majority in the Rajya Sabha for the ruling party. However, most important point is that there is no solid economic reform (from the context of stock markets), which is pending for the majority support in the Rajya Sabha. Even the toughest one viz., GST, has already gone through all major hurdles.

Hence, the market valuation or individual stocks and continued flow from the FIIs would be the dominant factors, which would decide the course of market directions ultimately, rather than the “state elections outcome”. Therefore, like Bihar elections and the Budget, this event would also be forgotten by the equity markets within a week or so.

AMBIT CAPITAL

Our latest checks in Delhi suggest that policy-making in India is likely to continue being ad-hoc if the BJP emerges victorious in UP with no specific over-arching ideology informing economic decision-making. Moreover, expert opinion is likely to continue being given a low priority with political motives guiding economic decisions.

SAMIR ARORA, FOUNDER AND FUND MANAGER, HELIOS CAPITAL

We do not believe that outcome of state elections can be a big development for the market. Bharatiya Janata Party (BJP) is expected to win in UP (the only election that matters in this round, if at all). Even if BJP does not win, we don’t think that investors will project this to derive conclusions about 2019 national elections. If BJP wins as expected, the market will have more reasons to go up for sure 

SONAL VARMA, MANAGING DIRECTOR AND CHIEF INDIA ECONOMIST AT NOMURA

Uttar Pradesh is seen as a litmus test of Prime Minister Modi’s performance. Irrespective of the outcome, we expect government policies to stay prudent. A better performance for the BJP in the state elections would improve its seat tally in the upper house, although it is likely to remain below the halfway mark throughout its first term (until May 2019)

PORINJU VELIYATH, MANAGING DIRECTOR AND PORTFOLIO MANAGER, EQUITY INTELLIGENCE

Markets will go up regardless of who wins the UP elections. Significance of UP elections is largely limited to media discussion, and beyond that it’s the outcome that will only motivate the government to focus more on development. Most significant achievement of our Prime Minister Narendra Modi to me is that he has brought development to the centre-stage of Indian politics. Political parties which survived on caste and religious
identities in the past, are now being forced to talk development. Voters are smart today, they will reward performing governments and punish the non-performing ones.

MANISHI RAYCHAUDHURI, ASIA PACIFIC EQUITY STRATEGIST AT BNP PARIBAS

A favourable result for the ruling party in the State assembly elections would obviously be taken positively by the market. An unfavourable result, on the other hand, could ignite concerns about the feasibility of further reforms and of the path of fiscal consolidation that the Government has adopted.

AMAR AMBANI, HEAD OF RESEARCH, IIFL

Impact of demonetisation will be a key narrative (besides other local issues). These ballots will also serve as an implied referendum on Narendra Modi’s development agenda. Indisputably, outcome of the elections in the most populous state of Uttar Pradesh (UP) will pave the path for 2019 elections.

JAGANNADHAM THUNUGUNTLA, HEAD OF FUNDAMENTAL RESEARCH, KARVY

These are the first high profile elections post-demonetisation, which can provide insight into electoral mood post such a massive event of demonetisation. UP is the most populous state in India. Out of 543 seats in Lok Sabha, 80 seats are elected from Uttar Pradesh (UP). These elections would not only be important in gaining majority in the upper house of Parliament (Rajya Sabha), but also serve as a litmus test for the acceptance
of demonetisation by the masses.

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