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Markets Expected to Take a Beating as Urjit Patel Steps Down and Exit Polls Predict Close Contest

Markets Expected to Take a Beating as Urjit Patel Steps Down and Exit Polls Predict Close Contest

Exit polls indicate a tight race between BJP and Congress in Madhya Pradesh and Chhattisgarh while they give the Congress an edge in Rajasthan.

New Delhi: After an eventful evening on Monday and equal drama likely on Tuesday, the markets are expected to react accordingly. The Sensex fell 700 points on Monday after exit poll results predicted a close fight between ruling BJP in key states of Madhya Pradesh and Chhattisgarh

A selloff in global markets also weighed on domestic markets. In another uncertainty for markets, RBI governor Urjit Patel abruptly resigned on Monday. This announcement came in after market hours on Monday. In a note, Kotak Institutional Equities said that besides the outcome of Assembly election results, oil prices and China-US trade issues will act as overhangs for Indian markets. In the same note, which was published before Patel announced his resignation, Kotak Institutional Equities, forecast different scenarios for the Indian market, based on election results.

The brokerage in the note said it expects markets to find some support if the ruling BJP is able to retain power in the three states of Madhya Pradesh, Chhattisgarh and Rajasthan. Even if the BJP wins in two of these three Hindi heartland states, Kotak Institutional Equities expects markets to gain some support. “In our view, a 3-0 (BJP winning Chhattisgarh, Madhya Pradesh and Rajasthan) or 2-1 (BJP winning Chhattisgarh and Madhya Pradesh) score for the BJP may result in a moderate market rally, subject to global developments, with the market ascribing a higher probability of the BJP winning the national elections in April-May 2019,” the brokerage said in the note.

Exit polls indicate a tight race between BJP and Congress in Madhya Pradesh and Chhattisgarh while they give the Congress an edge in Rajasthan.

Market observers will also be closely watching the dollar-rupee and bond markets in the wake of Patel’s resignation.

Rupee forwards posted their biggest daily slump in more than five years on Monday, after RBI chief Urjit Patel resigned for “personal reasons”. The one-month contract was last quoted at 72.62 per dollar compared to a spot market rate of 71.35 per dollar.

Coming to the global backdrop, Brent crude oil prices have risen from recent lows after producer club OPEC and some non-affiliated suppliers last Friday agreed to a supply cut from January. US bank Morgan Stanley said the cut was “likely sufficient to balance the market in first half of 2019 and prevent inventories from building”.

Oil prices have fallen sharply since October on signs of a global economic slowdown, with Brent losing almost 30 percent in value. This had triggered a 5 percent rally in the Nifty in November.