A resounding win for BJP in Uttar Pradesh will likely give a booster to the stock markets, but it will only have a temporary impact. The benchmark indices will likely celebrate a clean sweep for BJP in the crucial state, which is much ahead of only a comfortable position close to the majority mark predicted by most exit polls, but are sure to return home after the party ends.
Earlier Friday, the markets traded strong in the morning trade after the release of the exit poll results, but later consolidated gains to close only mildly positive, buying time to wait for the final judgement.
Similarly, analysts caution against letting the sentiments loose into the markets and buying heavily, as any rally based on election results would most likely be short-lived. Post any short-term movement, the markets would likely come back to the usual trajectory, and would continue to be guided by the fundamentals, such as progress of the economic reforms, analysts say.
“Any reaction either on the upside or on the downside based only on the elections is going to be very very short-lived,” Sunil Singhania, CIO – Equity Investments, Reliance Mutual Fund, said in a recent interview to CNBC TV18.
UP win will strengthen Modi’s central government with greater say in the upper house of the Parliament, as it will allow more BJP members in Rajya Sabha. This could help the government push some crucial reforms harder, which are stuck because of political opposition on contentious matters such as land and labour.
You may also like to watch:
However, even a resounding UP win will not give the party an absolute majority in Rajya Sabha, where BJP is short 50 seats, whereas the state offers only 10 before the 2019 elections. Thus, what will be crucial for the markets going forward is the pace of economic development and reforms at the centre, and not the control over a state.
I don’t think (BJP) winning or losing UP would have a significant impact on the market beyond a week or two, Edelweiss Securities CEO Vikas Khemani said to CNBC TV18 in a recent interview. It is going to be a short-term movement and the market will go back to normal once the event is over, Khemani added.
Others too advise the investors to remain cautious and avoid momentum buying as there might be some volatility in the markets after the announcement of the results, and rather invest based on the fundamentals which are looking strong. Being the single-largest party will reinforce BJP’s strong position and with the falling crude oil prices and positives of the demonetisation Indian markets will regain its position of outperformance in the second half of the current year, Sanjiv Bhasin, Executive VP- Market & Corporate Affairs, IIFL, said to CNBC TV18.