What the BJP’s strong performance in the state elections means for Indian stock markets


The Bharatiya Janata Party (BJP) retained power in four states – Uttar Pradesh (UP), Uttarakhand, Goa and Manipur, according to declared national election results on Thursday. After the election, Jefferies thinks government political action could resume.

“We think the government could push for privatization in the coming months. The sale of Air-India at the end of 2021 was a precursor to the same and the government is now likely to proceed with the privatization of oil major BPCL, some PSU banks and other PSU assets/lands in the coming months. Political success should also mean that the direction of government spending on infrastructure should not change,” the global broker said in a note.

Fuel price revisions have been halted since early November 2021 and Petroleum Marketing Companies (OMCs) need a sharp rise in retail prices to restore normal marketing margins.

A slight rise in retail fuel prices over the next few days could be positive for OMCs. In addition, privatization candidates such as BPCL, Concor, BEML, SCI and IDBI could see positive news flow, Jefferies added.

As the results are broadly in line with exit poll expectations and forecasts, equity markets will shift to more important near-term issues, such as the Russia-Ukraine geopolitical dispute, Fed rate hikes United States, high crude oil prices and the RBI’s response to rising inflationary pressures in the economy.

Motilal Oswal expects equity markets to remain volatile until existing headwinds subside. “Valuations at a ~19x FY23E EPS P/E for Nifty seem relatively more reasonable,” he said.

Even with political continuity, polling results are unlikely to have much impact on the direction of markets, and the focus will be on how policymakers minimize the economic cost of the geopolitical quagmire, experts say.

“As we analyze the macro impact of rising energy prices, we understand that the situation is still fluid. However, with Brent potentially reaching $100/bbl on average in FY23, this could imply inflation above 5.6%, a CAD/GDP ratio above 3%, and growth below 7.5%.However, our preliminary assessment suggests that Nifty’s aggregate earnings are quite resilient in this downside scenario , with a possibility of a reduction of around 30%/20%/10% of the overall FY23E PAT of Auto/Cement/Consumer stocks in the Nifty,” brokerage Emkay said.

The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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