How Assembly Election Results of 5 States May Impact Stock Market Tomorrow

The outcome of assembly polls across these key states – UP, Punjab, Goa, Mizoram, and Uttarakhand – on March 10 comes at a time of global headwinds in the form of geopolitical crisis between Russia and Ukraine, rising oil prices, and an expected aggressive rate hike by the US Federal Reserve later in March have already taken center stage. The exit polls for the five states were announced post-market hours on Monday. Uttar Pradesh, the most populous state, is set to be scored by the Bharatiya Janata Party (BJP), while Arvind Kejriwal-led Aam Aadmi Party is projected to rule Punjab.

Analysts say, the outcome of UP will be keenly watched by the Markets, as it will pave the way for how the ruling NDA/ Bharatiya Janata Party approaches and prepares for the general elections due in 2024.

Amnish Aggarwal – director – Institutional Equities at Prabhudas Lilladher, said: “State Polls which are being touted as semifinal before 2024 general elections will have some impact on the direction of economic reforms and visibility of Modi-led government beyond 2024. Given that it includes UP and a state from the Northeast makes it very important.”

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Ukraine-Russia War – A Bigger Problem

Unlike earlier state elections, what is a big difference this time is the ongoing war in Ukraine. With no let-up in Russian aggression and the wide geopolitical and economic ramifications of the event, there is a possibility of a longer disruption in the financial markets. This year more so, therefore, the impact of the states voting results on the market may be muted. Parth Nyati, founder, Tradingo, said: “As of now, the focus of the market is on a geopolitical issue therefore the outcome of election results could have some impact on the market only for 1-2 days.”

What Impact Can These Poll Results Have On D-Street?

Poll results days usually see high volatility. On the days of 2007 and 2012 state election results, the Nifty saw an intra-day move of more than 2 percent and 3 percent, respectively. In 2017, the intra-day move was smaller. So, some sizable swings may be expected on the day of the poll results, i.e. tomorrow, March 10.

However, experts expect a bit of volatility but that would be temporary, as the market generally focuses more on national elections rather than states. “While state-level elections do create anxiety about uncertain outcomes, they do not impact the overall earnings trajectory of the corporate sector in a material way. Therefore, the state election results may have some short-term market impact but we believe that long-term investors would ignore these election results,” said Abhay Agarwal of Piper Serica.

“Equity markets don’t like uncertainty and prefer stability. If the market thinks that government policies will remain consistent and investor-friendly, it will cheer the election results no matter who wins. In case the markets believe that assembly election results will lead to a change in direction where the government is forced to increase social spending, the markets will take it negatively,” explained Nishit Master, portfolio manager, Axis Securities.

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