With various opinion polls predicting an Aam Aadmi Party (AAP) victory in the Delhi Assembly election, the stock market appears to be getting the jitters. This is being touted as a reason for the fall in the indices for five days in a row.
Market analysts and stock broking firms BusinessLine spoke to had differing views about the impact of the Delhi polls, but there was consensus that the impact on the market would be short term.
“We think the market is likely to see a correction of around 5 per cent over next two months on account of supply of paper, rich valuations and weak earnings. A loss in Delhi polls for the BJP could further provide an excuse for the correction,” said a Bank of America Merrill Lynch report, authored by Jyotivardhan Jaipuria and Anand Kumar.
However, they think that these corrections are tactical and maintain the year-end Sensex target of 33,000.
What would a BJP loss mean for the market? The report states, “While an outcome in the Delhi Assembly election doesn’t impact the Central Government led by Narendra Modi, we think the market would be concerned whether the election result is a local issue (as State elections generally are) or whether it indicates some loss of popularity for the ruling BJP.”
Delhi has seven Parliamentary seats and 70 Assembly seats. It is going to polls on February 7 and the results will be announced on February 10. Though all the major political parties are in fray, the real battle is between the BJP and the AAP.
The negative outlook is based on the AAP’s performance during its short-lived government in 2013 and its campaign plank, which is regarded as anti-business. Its manifesto promises cheaper power and water as also devolution of power to local bodies.
Vijay Bhushan of Bharat Bhushan Equity Traders said a victory for AAP could mean “there is a dent in BJP’s popularity. It could also form a perception that the Modi wave is on decline.” He said the market has already discounted the projection of a hung Assembly. However, “domestic investors see a victory for the AAP as a negative,” he said.
Dinesh Thakkar, CMD of Angel Broking, felt that there might be a short-term negative sentiment impact, but the broader political outlook for the country as a whole remains positive.
“In my view, the market will eventually continue to give maximum weightage to the ongoing reform agenda and its execution at the national level,” he said.
Jaipuria and Kumar also did not think that the poll result would change the course of the reforms agenda in India.