Monday, February 6

Can Yogi’s victory in UP election make Dalal Street investors look beyond Ukraine?


NEW DELHI: Benchmark indices saw a solid 2 per cent jump in Thursday’s trade, in line with a strong up to 4 per cent surge in Asian peers on prospects of oil prices falling further amid Ukraine-Russia talks and increase in oil supplies.

BJP leading vote counts in four out of five recently concluded state elections, including the all-important UP, also kept the sentiment upbeat. But analysts said while the outcome may ease some political uncertainty, the geopolitical tensions are too big to ignore and in fact, may be the key drivers of the market going ahead.

Swaminathan Aiyar, Consulting Editor at ET NOW said the party has managed to beat anti-incumbency, high inflation, higher unemployment, Covid and many other challenges.

“They had beaten all of them to have a victory of a two-thirds majority and this has not happened for 30-40 years since early years of independence when a chief minister of Uttar Pradesh was re-elected with this kind of majority. I would say that means that Mr Modi is very likely to have a strong victory in 2024 because the BJP always does better in national elections than state elections,” he said.

But can a strong show in UP lift the stock market? Unlikely, said analysts.

Mahesh Nandurkar of Jefferies said the impact of election results are not really long-lasting for the market, especially at the state level.

“But yes, UP is a pretty large state and people will be watching out for not just who wins there, but by what kind of margins because that will have some implications for 2024. Let us wait and watch (for the final outcome),” he told ET NOW.

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Various exit polls for the state election suggested that BJP will comfortably retain the state with an average of 257 seats. With vote count on, BJP was leading on 254 seats in UP. Except for Punjab, it was also leading in Manipur, Goa and Uttarakhand.

“We believe investors still need to be vigilant because the uncertainty of the geopolitical standoff still looms large. Commodity prices are least likely to see a secular downturn even after war subsides because sanctions will continue to disrupt the global supply chain. Unless sanctions are withdrawn, the global markets can remain volatile in the coming months and India will not remain insulated,” said Aishvarya Dadheech, Fund Manager, Ambit Asset Management.

Sandip Sabharwal, asksandipsabharwal.com said state elections results have little bearing on the markets beyond a day or so.

“Even if the results were the other way, the impact would not have been much. There are much bigger global factors at play and macroeconomic factors related to inflation and interest rates, and those are the things that will determine valuations. So the state election results will create very-very short-term volatility and that also I think should not happen because largely the expectations seem to be pretty well set,” he said.

ELECTION WITH ET
  • All
  • UP
  • Punjab
  • Uttarakhand
  • Goa
  • Manipur

In the 15 days since Russia announced its ‘special military operation’ on Ukraine, equity markets have declined 3-8 per cent while commodities have seen a broad-based 50-90 per cent rise in prices. During this period emerging market currencies have depreciated by over 2 per cent.

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It has also prompted a flight to safe-haven assets such as gold (up 5 per cent), US dollar (up 2 per cent rise) and government bonds of advanced economies.

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