Along with global events and macro factors, from last one month or so, all eyes have been on one key event which is state elections results, the widely considered as semi-final before general elections 2019.
After a sharp correction in September and October, the market managed to rally sharply (9 percent or 900 points) in November driven by steep fall in oil prices and appreciation in rupee. It turned volatile in last few sessions, especially as results five states elections neared.
Before the counting day on December 11, investors are trying to guess the likely results through opinion polls, as well as exit polls.
Moneycontrol also talked to market analysts and tried to find out what possibilities are and how the market will react to exit poll and actual results, though it is one-day reaction and then the market will shift its focus to macro factors, global events and earnings.
In five states, Madhya Pradesh, Rajasthan and Chhattisgarh are key ones for both national parties BJP and Congress ahead of Lok Sabha elections.
But for ruling party BJP, Madhya Pradesh and Rajasthan are key states as both gave more than 50 seats in Lok Sabha elections 2014.
“BJP is going to have upperhand in Madhya Pradesh and Chhattisgarh and also to some extent in Rajasthan but Telangana is expected to go with TRS, the current ruling party of the state,” Siddharth Sedani, Vice President – Equity Advisory, Anand Rathi Shares and Stock Brokers told Moneycontrol.
Gaurav Dua, Head of Research, Sharekhan by BNP Paribas also said the market seems to have priced in that the BJP is likely to retain its power in Madhya Pradesh and Chhattisgarh and losing in Rajasthan.
Kotak Institutional Equities said opinion polls suggest a win for the BJP in Chhattisgarh, a loss for the BJP in Rajasthan and a close contest in Madhya Pradesh while the market expects the BJP to retain Chhattisgarh and Madhya Pradesh but lose Rajasthan.
Among these states, Shailendra Kumar, Chief Investment Officer, Narnolia Financial Advisors said wining Madhya Pradesh is important for BJP as any result sentiment generally reflect in UP and Maharashtra which both are adjustant states.
But the same is not the case in Chhattisgarh and Rajasthan as sentiment will not reflect in other adjacent states, he added.
AK Prabhakar, Head of Research at IDBI Capital said winning in state elections is important for BJP instead of getting power through adjustment of seats.
So what are levels to watch out for in every case?
Experts agreed on one thing that in extreme case the market may hit March lows, but in positive case, it will go around 11,000 levels on the Nifty.
Shailendra Kumar said if the market falls 10,500 on Friday then the market will trade at around 17.3 PE on expected FY20 earnings, which means the market may be priced in state elections results of BJP losing in 2 out of 3 states (Madhya Pradesh, Chhattisgarh and Rajasthan).
If it loses in all states then 10,000 levels may be seen, which means the market will be available at 15.5-16 PE on expected FY20 earnings, which will also indicate that there could be high probability of general elections 2019 losing by BJP, he added.
Gaurav Dua, Head of Research, Sharekhan by BNP Paribas also said if the BJP loses in all three states, then there could be knee-jerk reaction in the market. “Anyway, any fall from hereon would always be a buying as ultimately market always focusses on macro and earnings in long term.”
Kotak, too, agreed a 3-0 score for the BJP may extend the current rally while a 0-3 or 1-2 loss (Madhya Pradesh and Rajasthan) for the BJP may result in a sharp correction in the market with
the market likely to take a dim view of the BJP’s prospects in the general elections in April-May 2019 given the large contribution of the three states in the BJP’s 2014 win.
In positive case, Shailendra Kumar feels in actual results on December 11, if BJP wins 2 out of 3 states then 11,000 would be the possibility then the market would be around 18 PE.