Indian markets are expected to be volatile Monday as exit polls indicate that majority may prove elusive for Prime Minister Narendra Modi’s Bharatiya Janata Party in elections in a key southern state.
At least four exit polls, including Today’s Chanakya, which accurately predicted Modi’s victory in 2014 elections, showed the BJP as the single largest party winning anywhere between 95 to 120 seats in the 224-member Karnataka assembly. The incumbent Indian National Congress -- also the main federal opposition party -- is seen bagging 72 to 99 seats.
“Margin of victory is the most important factor and with the exit polls indicating all kinds of permutations and combinations, the markets are definitely going to be volatile,” said Avinash Gorakshakar, head of research at Mumbai-based Joindre Capital Services Ltd. “Having said that, a conclusive BJP win can push the Nifty above 11,000 this week and a Congress victory can see the gauge drop as much as 400 points.”
Investors fear an inconclusive verdict could prompt the federal government to take populist measures to shore up public support ahead of nationwide elections in 2019. Markets will cheer an outright win for BJP as a vindication of a slew of reform measures -- including a nationwide sales tax and a funding plan for state-owned lenders -- that prompted the first sovereign rating upgrade from Moody’s Investors Service in 14 years.
Exit Polls predict that the Janata Dal (Secular), a regional party led by former Prime Minister H.D. Deve Gowda, will be kingmaker in case of a hung assembly in Karnataka, which has a population equivalent to that of France.
An India Today-Axis Poll pegged Congress as the front-runner winning as many 118 seats while Times Now VMR exit poll also predicted BJP finishing second. Both saw JD(S) finishing third.
“Exit polls are all over the place,” said Anindya Banerjee, a foreign-exchange analyst at Kotak Securities Ltd. in Mumbai. “In case, the BJP forms the government, it will be a positive development for the rupee, which is already one of the worst performing currencies in the emerging market basket in 2018. It will reduce some of the political risk premium.”
The benchmark S&P BSE Sensex and the NSE Nifty 50 indexes climbed 1.7 percent on March 14 last year, a day after the BJP sealed a thumping victory in Uttar Pradesh, the nation’s most populous state. Votes for Karnataka ballot, that took place on Saturday, will be counted on May 15.
After Karnataka, the BJP will lock horns with the Congress in at least five state elections -- including Rajasthan, Madhya Pradesh and Odisha -- before the national polls in 2019.
The Sensex has climbed 49 percent since the BJP in May 2014 won the biggest mandate in 30 years, while the rupee has fallen 14 percent.
To contact the reporters on this story: Ameya Karve in Mumbai at akarve@bloomberg.net, Kartik Goyal in Mumbai at kgoyal@bloomberg.net.
To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Tan Hwee Ann at hatan@bloomberg.net, Unni Krishnan, Arijit Ghosh
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