What Dalal Street Is Saying About The Exit Polls

Indian equity benchmarks opened lower on Monday after exit polls for five states showed Prime Minister Narendra Modi’s popularity is in doubt going into 2019 election, according to market experts.

Six major exit polls showed the ruling Bharatiya Janata Party and the opposition Congress party neck-and-neck in the states of Madhya Pradesh and Chhattisgarh. Three polls showed BJP ahead, while the rest gave Congress a slight edge in the two states. The winners will be declared when ballots are counted on Tuesday.

The NSE Nifty 50 Index fell as much as 1.94 percent to 10,486 early on Monday, while the S&P BSE Sensex Index tested the 35,000-mark in early trade, before paring losses.

Here’s Dalal Street veterans’ view on the exit polls:

Today’s correction is as much about the geo-politics with regard to the Huawei CFO arrest, FBI’s investigation into Trump, as it is about the exit polls, and that point of view will sustain over the next four to five months. The Indian political scenario, however, has never had any fundamental bearing on its economy. It hasn’t had in the past, and it won’t now.

But if the Nifty pulls back to 9,500-levels, it will create a buyback opportunity. And there’s a real possibility of a pullback due to the combination of global geo-political drama and domestic political uncertainty.

If the BJP ends up losing two of these three states, it will be a negative for market sentiment. On the other hand, a look at the manifestos of both the national parties for these states suggest that farmers’ demands and jobs are going to be the top-two issues for the 2019 elections and farm loan waivers and other sops to farmers will take centre-stage.

The market could see a modest rally or a sharp correction on and after Dec. 11 (results date for five state elections) depending on the outcome of the state elections in the critical states of Chhattisgarh, Madhya Pradesh and Rajasthan.

The markets have factored in three out of five states in favour of BJP.

An exit from Rajasthan is already discounted, though the number of seats scored would matter. However, the market will recover from the initial reaction in two days and the goal post will shift to the 2019 election.

The market will continue to lack confidence even if the BJP scores three states and will drag in a range with a focus on global issues like crude, currency and the U.S. economy.

Exit polls are not good news for the market. It appears that the ruling party in all three important states is facing anti-incumbency and thus will be voted out.

While markets have been fearing this — and have discounted the outcome to quite an extent — the exit polls further reinforce this view. In this backdrop, markets are likely to be weak on Monday.

BJP losing the three states seems like a possibility and that could mean a correction of 3-4 percent in the markets over the next 2-3 days. If the BJP performance is sub-par, it could make the opposition coalition harder to take shape. That’s the only positive.

The markets expected the BJP to retain its mantle in the Hindi heartland. But the mixed results portrayed by the exit polls should lead to a negative reaction. Expect the markets to trade on the softer side when we open for trade on Monday.

Exit polls are never accurate and so is this time.

The markets will wait for the election outcome, which will have some implication in the short term based on the outcome. A significantly positive outcome in favour of the BJP will create a positive momentum. After the initial reaction of a few days, the market will get back to normalcy.

We have a contrarian approach that post 24-hour hiccup, if there are major electoral reverses, the government is going to go into major economy-fixing mode benefiting the market.

And if it wins hand down, then there will be a blip. But since nothing will change on the economic front, it will be bad news for the market.

The exit poll numbers will result in a mildly negative opening for the market on Monday. The real movement will only come after actual results on Dec. 11.

A 3-0 or 2-1 win for the Congress in three states of Rajasthan, Madhya Pradesh, and Chattisgarh will take the Nifty down to the 10,000 level and a 2-1 win for the BJP will take it to 11,000-plus levels. In the least likely scenario of 3-0 BJP win, the market may make a new high by January 2019.

Here’s what the money market experts and economists said:

The exit poll results could act as a trigger for the unwinding of the sharp rally in money markets seen over the last few sessions. We can expect the 10-year bond yield to stabilise between 7.50 percent and 7.60 percent in the near term.

Also Read: All You Need To Know About Elections 2018

The market is less likely to be affected by polls. It would probably focus more on OPEC finalising the 1.2 million barrels per day cut. This has pushed up crude prices.

This may put pressure on the rupee and it may test the 71 level. As this feeds into pump prices and consumer inflation, bonds also may pause and yields may hover around 7.45 percent and range between 7.43 percent and 7.50 percent.

Markets are likely to remain on the edge ahead of the state elections results on Dec. 11, especially as the exit polls presented a confused picture in Madhya Pradesh and Chhattisgarh. This, in conjunction with surprise breakthrough in OPEC+ production cut has lent renewed support to Brent which would weigh on the rupee and India bonds. Additionally, the fate of Brexit parliamentary vote on Dec. 11 would add another layer of uncertainty in forex space globally. We remain watchful of unwinding of global events, including that of the U.S. Fed’s December policy .

Generally state election outcomes have been known to be a poor leading indicator of general election. However, as the three erstwhile BJP states have a large agrarian population, the BJP’s drubbing could be interpreted to mean that farm unrest is real, and the much-vaunted increase in farm minimum support prices haven’t yielded material political dividends. Also, a rout of the BJP on its home-ground states should encourage cohesion among the opposition parties to strengthen the non-BJP coalition for the general elections.

Markets will likely continue pricing in political uncertainty. We continue to expect a step-up in public rural spend. Farm loan waivers should climb to $40 billion from $25 billion so far. Finally, while markets do react to election outcomes, we see the Indian cycle far more linked to the global cycle.

The immediate impact of the exit polls could lead to more volatility in the dollar-rupee market, putting a bit pressure on the local unit. However, the market will follow fundamentals going forward, which includes low global oil prices and a possible pause in the U.S. interest rate hikes. If actual results are divergent from the exit polls, a rally also would follow in the long run.