May 4 is going to be an important day in India’s political calendar. The assembly election results for West Bengal, Assam, Tamil Nadu, Kerala and Puducherry are going to be declared. All eyes are on how the results are going to shape market action. Kotak Institutional Equities pointed out that markets may continue to debate more on oil versus macro concerns “while giving a brief cheer for electoral stability.”
The exit poll results on assembly elections so far suggest that incumbents are likely to retain their majority in most states, but West Bengal could be a close call. However, in the market context, the street will be watching out for stability, and the global headwinds, especially the oil prices, continue to be a bigger concern.
Kotak Institutional Equities on Election and markets
In a recent report, Sanjeev Prasad, MD, Kotak Institutional Equities, highlighted that “oil, geopolitics and valuations remain the binding constraints for markets.” According to him, markets are “likely to react positively in the near-term if exit polls, particularly the BJP’s projected breakthrough in West Bengal, are validated on May 4, 2026.”
However, he believes that the “durability of any rally will be tested quickly, as the trajectory of crude oil remains the single largest short-term risk variable.”
The 3 big concerns for the market
Prasad lists out the 3 big concerns for the market at the moment –
He pointed out that the “markets to trade in a range, with election enthusiasm fading relatively quickly as attention reverts to (1) earnings delivery, (2) oil price trajectory and its implications for India’s macro and (3) the government’s willingness to undertake difficult but necessary policy adjustments on energy pricing.”
Why the BJP’s performance is being closely monitored: Kotak explains
According to Kotak one of the key outcome of the State election results could be NDA looking to further bolster its ranks in Rajya Sabha. The NDA has a strong majority in Rajya Sabha currently with the recent defection of 7 AAP parliamentarians to BJP (which may get challenged in courts).
The Kotak Institutional Equities highlighted that the likely increase in BJP’s strength in the respective “state legislative assemblies in the recent elections may further increase NDA’s strength in the next Rajya Sabha election cycles.”
Given their current strength in both Houses, the NDA has the requisite strength to pass most of its legislative agenda, other than constitutional amendments that require two-third majority.
The big concerns for the market
However, the Kotak report clearly pointed out that the firm focus for the markets continue “on navigating near-term economic headwinds.”
With no major state election scheduled until early 2027, “the government enters a relatively election-free corridor of 10 months. We expect the government to firmly focus on managing India’s weakening macro environment.” they explained
Some of the key concerns for the country include
– Elevated crude oil prices
– Risks to food inflation from a sub-par monsoon
– Widening current account deficit
What are policymakers are likely to focus on?
Kotal Institutional Equities highlighted that the govt is expected to focus on “rationalising energy subsidies, accelerating trade diversification, finalising the India-US Bilateral Trade Agreement and accelerating certain slow-moving reforms.”
According to them, the election may provide some near-term cheer if BJP wins in key states but the primary focus area continues to be crude price swings and valuation for the markets.
