If BJP loses state polls, market mayhem may continue

The ruling BJP losing Chhattisgarh, Madhya Pradesh and Rajasthan, or being able to retain power only in Chhattisgarh may result in a "sharp correction" in the indices

Illustration: Uttam Ghosh/Rediff.com

The ruling Bharatiya Janata Party has a better shot at retaining power in the next general elections and any reverses to the ruling party in the state polls will lead to a "sharp" correction in the market, warn market analysts.

The commentary comes a day ahead of declaration of the election results in five state assemblies on Tuesday and a flurry of exit polls showing difficulties for the BJP.

Reacting to the exit polls, the benchmark Sensex tanked 2 per cent on Monday.

The ruling BJP losing Chhattisgarh, Madhya Pradesh and Rajasthan, or being able to retain power only in Chhattisgarh may result in a "sharp correction" in the indices, analysts at domestic brokerage Kotak Securities said on Monday.

"The market will likely take a dim view of the BJP's prospects in the next national elections scheduled for April-May given the large contribution of these three states to the BJP's 2014 win," they said.

These three BJP-ruled states sent 67 MPs to Parliament.

Concurring with the view, analysts at Edelweiss Securities said the exit polls result kept the markets "on the edge" Monday, especially because of a confusing picture for MP and Chhattisgarh.

Geojit Financial Services blamed the bloodbath in the market ahead of the counting to the same anxieties arising from the exit polls.

"Unfavourable exit poll results for the ruling BJP has impacted the market sentiment Monday and this dullness will continue if the final outcome confirms their lose," it said.

Apart from the jitters over the election results, weak global cues including the rise in crude oil prices also hurt the markets on Monday, Emkay Wealth Management said.

On the other hand, if the BJP puts up a better performance, there will only be a "modest rally" as the market ascribes a higher probability of the BJP retaining power in the 2019 general elections, Kotak Securities said.