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No clear signal from the exit polls, market to stay volatile till results

Some money managers believe that a coalition of BJP and Janata Dal would be on expected lines.

, ET Bureau|
Updated: May 14, 2018, 09.35 AM IST
Mumbai: Major fireworks are unlikely on Dalal Street on Monday as the exit polls on Saturday could not agree on the results of the Karnataka assembly elections.

The direction of the market, which has run up about 9 per cent from the lows of the recent correction partly on expectation that the Bharatiya Janata Party will be able to form a government in the state, will become clear when the outcome becomes known on Tuesday.

Markets are likely to be volatile till then, experts said.

“The markets will remain volatile till actual results are out. Opinion polls or exit polls have not given a definite indication,” said Harsha Upadhyaya, chief investment officer-equities at Kotak Mahindra Asset Management Company.

Some money managers believe that a coalition of the BJP and Janata Dal (Secular) would be on expected lines; but others said such an arrangement could still take the market 100-150 points higher. A win by the Congress could lead to the market giving up some of the recent gains, they added.

Most exit polls indicated that there might be a hung assembly in Karnataka. Most predicted the BJP, which is the ruling party at the Centre, will likely emerge as the single-largest party in the state. However, some exit polls suggested that the Congress could be the single largest party.

Exit polls are released after polling ends and the final tally could be different. Money managers said that the impact of the Karnataka elections, regardless of the outcome, will not be felt for more than a couple of days, but will surely serve as an indicator for the political sentiment ahead of polls in Chhattisgarh, Madhya Pradesh and Rajasthan later this year. General elections are due next year.

“Markets will cheer any lead that the BJP will get, whether on its own or as the single largest party...BJP gaining ground will be viewed positively but later markets are likely to normalise and take direction from earnings, interest rates, currency, monsoon and flows,” said Rajat Rajgarhia, CEO, Motilal Oswal Institutional Equities. “I don’t think, the levels we are at, there is much room for disappointment,” added Rajgarhia.

The indices had fallen sharply from these record levels in February and March mainly on global trade war concerns, with the Nifty falling even below the psychologically crucial mark of 10,000.

However, indices have recovered 8-9 per cent from the lows on expectation of BJP win in Karnataka elections, prediction of normal monsoon for the third consecutive year and earnings recovery. These factors have helped markets tide over the worries stemming from the surge in oil prices and a depreciating rupee. Some money managers believe that these concerns would eventually weigh on the market.

Even if the indices climb higher, the rally is unlikely to last, says Sanjiv Bhasin, executive VPmarkets & corporate affairs at Mumbai-based IIFL.

“If BJP forms a coalition with JDS it will be largely in line with market expectations. We may get upside till 11,000; but after those gains will be sold into as oil, bond yields and rupee are pointing to the negative side,” said Bhasin.

Investment advisor Sandip Sabharwal believes that only a very emphatic win by the BJP in Karnataka elections can be taken positively as several factors like rising oil, falling rupee as well as the build-up of inflationary pressures will eventually weigh on the markets.

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