Exit polls show Congress may win in Karnataka. Can it influence market?

As Mint reported earlier, the Congress is likely to edge ahead of the Bharatiya Janata Party (BJP) in Karnataka and perhaps even gain a majority of its own in the 224-member assembly, a clutch of exit polls predicted on Wednesday after voting concluded in the southern state. The votes will be counted on 13 May.

Seven out of eight prominent exit polls predicted that the Congress will finish ahead of the incumbent BJP. Four of these polls also forecast that the Opposition party may even cross the majority mark of 113 on its own, something it has done only once in the past two decades. Three others said that the Congress will emerge as the single-largest party but fall short of the majority mark, the Mint report said.

Analysts believe Karnataka’s poll outcome may not have a significant impact on the market sentiment if it comes in accordance with the exit poll predictions.

After last evening’s exit poll predictions, the Sensex opened 218 points higher at 62,158.10 against the previous close of 61,940.20 but traded rangebound during the session.

G. Chokkalingam, Founder & Head of Research at Equinomics Research & Advisory is of the view that even if the ruling party loses power in Karnataka, it is most unlikely to impact the market adversely.

Chokkalingam pointed out that Karnataka accounts for only 5 per cent of total Lok Sabha seats in the country and even if the ruling party loses 50 per cent of seats in Karnataka assembly elections, that would have implications arithmetically to the extent of just around 2.5 per cent of total Lok Sabha seats in the country.

“As the ruling party has over 11 per cent additional seats as compared to the minimum absolute majority required in the Lok Sabha, we believe that the final outcome of Karnataka assembly elections, as predicted by the exit polls, would not have any serious implications for the domestic equity markets,” said Chokkalingam.

He also pointed out that India’s macroeconomic fundamentals are turning highly positive for India.

“India is one of the fastest-growing major economies in the world. Robust credit growth, capex plan of the central government, domestic service activities as well as service exports, and freight volumes handled by ports and railways along with the high quality of banking assets, robust inflows of remittances, aggressive PLI schemes, record crop output expected, normal monsoon forecast, significant moderation in inflation, etc., will augur well for the markets. Hence, the political outcome from one state is unlikely to deter the optimistic outlook of the markets in the short term,” Chokkalingam said.

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Along similar lines, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services believes if the actual election outcome reflects the exit poll results, the market will not be impacted as this outcome is in line with expectations. However, in case of a deviation, the market may see some impact.

“The exit polls indicate an edge for the Congress. This is somewhat in line with market expectations. However, if the actual result deviates sharply from the exit poll projections, it will impact the market, both ways,” said Vijayakumar.

“For instance, if the Congress wins decisively and can rule without JDS support, that will be a setback for the BJP. It will force the ruling dispensation to go more populist, impacting the market negatively. Conversely, if the BJP springs a surprise and wins the elections, that would be a shot in the arm for the ruling government. Such an outcome can have a positive impact on markets,” Vijayakumar said.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.