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Stock brokerages worry for market implications of Karnataka Elections

Karnataka assembly election outcome coupled with sliding rupee and rising global crude oil prices has made investors nervous over the past two sessions. Till Wednesday, the uncertainty had dragged the S&P BSE Sensex over 600 points from its three-month peak level of 35,994 hit a day earlier.

The election was being dubbed as the semi–final to the 2019 general elections. Besides beefing up the tally in Lok Sabha (Karnataka has 28 seats) and Rajya Sabha (12 seats), this election was important for the Bharatiya Janata Party (BJP) to make in-roads into south India – a region that has proved difficult for it to foray into. The state is significant for the Congress as well, which has been facing a tough fight with BJP in most of the states it used to rule.

Here is how leading brokerages and research houses interpret the election outcome and its implications for the markets:


If the BJP manages to secure a majority in the next 15 days, then it will govern in Karnataka. We assign a 70% probability to this scenario. If the BJP cannot secure a majority, then an INC+JD(S) coalition will be invited to form a government (30% probability).

A BJP-led government in Karnataka will be a positive one for FX markets, in our view; however, the close nature of the result and still-lingering uncertainty (15-day deadline) could limit near-term gains in the rupee.

Given the heavy election calendar (Chhattisgarh, Madhya Pradesh and Rajasthan are due to hold elections in Q4, with the general election in Q2 2019), we expect the ruling BJP government at the centre to focus on policies that benefit farmers, the rural economy and the common man.

In line with this, higher minimum support prices (MSPs), ensuring the MSP remains an effective floor (via fiscal transfers), and implementation of Modicare (health insurance), will likely be priorities. Risks from rising oil prices and our view that political uncertainty will rise again as the 2019 election approaches, still suggest caution on the macro front.


Karnataka assembly election results may add to expectations of a Modi win in 2019. Our discussions with investors suggest that they presume Narendra Modi will win 2019 national elections. Market’s recent performance and valuation multiples also suggest that this is priced in. In our view, opposition alliances will be a key element to track given fragmented votes and first-past-the-post system in India. Towards end-2018, results of 3 big state elections will also be key.

Dalton Capital

Markets were already factoring in a good performance – though not exactly a majority – ahead of the poll result. Going ahead, the markets will now look at domestic and global cues for direction. There are a number of headwinds at the global level that they will have to face now – rising interest rates in the US, geopolitical situation in Iran, crude oil prices and the upcoming US – North Korea meet being some of them.

Equinomics Research

Substantial improvement in Karnataka state assembly election is actually a positive development politically for the present government at the centre and also for stock markets. The Bharatiya Janata Party (BJP) had very weak base in south India. More than of doubling of count in Karnataka assembly, as compared to previous tally, would improve the optimism for the upcoming general elections in 2019.

Source: Business Standard


Cochin Herald

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