The markets have closed absolutely flat on the eve of the key Bihar election results counting day. The Nifty ended the session below the key 25,900 mark, while the Sensex closed absolutely flat. All eyes are on the Bihar election results now. Though state elections do not have a huge impact on sentiment, this one is different, given the NDA’s current composition at the Centre.
Along with signs of progress in India-US talks and the improving outlook, the market is factoring in a comfortable victory for the NDA in the Bihar elections, as per most experts. However, one must remember that this expectation is as per the exit polls. As we have seen in the last general elections, exit polls may not always predict the actual results.
Markets ahead of Bihar election results
That said, the stock markets would be looking forward to signs that signal political stability. Here is a quick look at key factors experts are watching out tomorrow-
Importance of Bihar Election results for political stability
Outlining the reasons why Bihar election results assume importance in the overall perspective, market veteran Ajay Bagga pointed out that “state elections don’t have a long-lasting impact on markets. However, given the central government’s dependence on the JD(U) , with its 12 MPs and the fear that the opposition could offer the PM seat to Chandra Babu Naidu’s TDP (16 MPs) to break the ruling NDA majority at the centre, there was some amount of trepidation around the Bihar poll outcome. Even though Exit polls cannot capture closely fought seats accurately, markets have put their faith in the Exit polls for now.”
He reiterated that the market is perhaps taking solace in the fact that there was no “swing” factor at work as such in the Exit Poll. “As the trends become clear by Friday noon, markets could rally again if the NDA maintains its hold on Bihar, as then the Delhi coalition will also seem safe,” he added. .
Earnings, India-US trade deal bigger long-term triggers
The big question is what if the actual results do not match Exit Poll indications? Well Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments pointed out that the macro triggers are still the more important one, in terms of the long-term catalysts for the markets, “the market has largely discounted a comfortable victory for the NDA in the Bihar elections.Since the Exit polls indicate a win for the NDA, this is the most likely outcome. However, if the actuals deviate from the exit poll indications and result in a victory for the Mahagathbandhan, that would be negative for the market. Such a development would be temporary.”
He added that the “medium to long-term trend of the market, however, will be dictated by economic factors like revival in earnings growth and a US-India trade deal.”
Overall positive news flow offer support
Siddhartha Khemka, Head of Research, Wealth Management, Motilal Oswal Financial Services, also reiterated that “multiple factors at play for markets. The exit polls have indicated strength for key NDA members. This is no doubt welcome news, as it shows political stability and the status quo. However, the bigger triggers are potential progress on India-US trade talks and the earnings. Commentary suggests Q3 demand will improve, and the market is expecting a rate cut.”
Overall, most market experts believe that the impact of the Bihar election results would be short-lived. The longer term tred would be decided by the macro triggers like inflation cooling off, RBI’s rate decision in the December Policy and also signs of progress in India-US trade deal.
