Karnataka poll result surprised markets; limited upside from here: U R Bhat

A BJP victory in Karnataka opens the door for early general election; markets not factoring that in yet

It is a good performance by the Bharatiya Janata Party (BJP) in the Karnataka Assembly polls and this is being reflected well in the enthusiasm shown by the markets. The upbeat performance at the bourses was warranted, given the surprising outcome.

However, this is as far as the markets will go in the short term. They were already factoring in a good performance – though not exactly a majority – ahead of the poll result. The performance has actually been better than expected.

Going ahead, the markets will now look at domestic and global cues for direction. There are a number of headwinds at the global level that they will have to face now – rising interest rates in the US, geopolitical situation in Iran, crude oil prices and the upcoming US – North Korea meet being some of them. That said, the sentiment will remain upbeat for a few days given the Karnataka assembly election outcome. The Nifty50 can hit 11,000 in the next couple of days.

Earlier, there was a debate that the general elections could be advanced in case the BJP wins in Karnataka. There are chances now that this may happen and we could see a renewed push to the argument to hold general elections alongside the assembly elections in Rajasthan, Chhattisgarh and Madhya Pradesh later this year (2018).

At the current levels, the markets are not factoring in the possibility of the general and assembly elections in these above-mentioned states being held together. BJP forming the government in Karnataka opens the door for an early election, but the markets are not yet factoring that in yet.

ALSO READ: Karnataka election results updates: BJP leads in 118 seats, Congress in 58

Foreign institutional investors (FIIs) will continue to be marginal sellers and this will be compensated by domestic flows. This is how the Indian equity market story will unfold, unless there is a dramatic shift in the economic indicators. Inflation, for now, is under control, GDP (gross domestic product) numbers are reasonably good. It is only the external side where we have a problem in terms of crude oil prices and rupee depreciation. These are two areas that the government will focus now. Once this is fixed, even the FIIs will start coming in.

The markets are worried about these two aspects – a widening current account deficit (CAD) and the pressure on the fiscal situation at a time when the government has to recapitalise the banks. If the government finances the bank recap program, it will definitely put pressure on the fiscal situation and the markets are not prepared for this.

If everything goes well for the economy, the markets can reach new highs. That said, the upside for the Nifty50 index remains capped at 11,500 levels. On the downside, it has support at 10,300 levels and then at 9,500 levels.

Why Karnataka's new government has a job on its hands despite 8.5% growth

In 2016, Karnataka recorded the second-highest number of farmer suicides-1,212, behind only Maharashtra

Karnataka is grappling with income inequality, an agrarian crisis and child malnutrition even though its economy grew at 8.5%–second-highest among 10 states and union territories in 2017–to a gross domestic product of Rs 9.5 lakh crore ($141 billion) in 2017-18, according to the latest economic survey.

The 2018-19 budget for the state is Rs 2.09 lakh crore ($31 billion), which is 12% more than the budget estimate of Rs 1.86 lakh crore for 2017-18. There has been an increase in the state’s revenue as well. Karnataka’s tax revenue for 2018-19, including goods and services tax (GT) compensation, is estimated to be Rs 1.03 lakh crore ($15 billion), an increase of 13% over the revised estimate for 2017-18.

The economic survey 2017-18 highlights Karnataka’s progress on the per capita income front too. With a per capita income of Rs 142,267 per annum, Karnataka’s citizens are India’s 10th richest, behind Delhi, Haryana, Maharashtra, and Kerala in 2015-16 according to national accounts.

This prosperity, however, has not led to equal distribution of wealth, robust agriculture or good access to public health systems.

Bengaluru city earns five times as much as poorest district, Kalaburagi

Income disparity is high in the state. Bengaluru urban is the richest pocket with a per capita income of Rs 320,346 per annum. Kalaburagi in the north is the poorest, with a per capita income of Rs 65,493 per annum, almost one-fifth that of the state’s capital city.

Source: Karnataka Economic Survey 2017-18; Figures in Rs

In primary education (grades I to V), Yadgir in northeast Karnataka suffers a dropout rate–calculated by subtracting the sum of promotion and repetition from 100 in every grade–of 12.3%. In Bengaluru Urban, this rate is 2.9%. Yadgir’s average primary dropout rate exceeds Mizoram’s (10.1%), according to the District Information System on Education (DISE) 2015-16.

Source: District Information System on Education 2015-16; Figures in %

This inequality is evident in health indicators as well. For example, in Dakshin Kannada, nearly 92% households reported improved sanitation in 2015-16. But in Yadgir, this rate stood at 18.1%, according to National Family Health Survey 2015-16.

Karnataka election: Rahul Gandhi says Congress wining 'hands down'; updates

With Karnataka Assembly election 2018 now on their heads, the BJP and Congress have just one more day to convince and woo voters. Catch all the updates around the Karnataka election here

With the Karnataka Assembly election 2018 just two days away, the BJP and Congress' high-voltage campaigning will come to an end on Thursday at 5 pm. Prime Minister Narendra Modi today interacted with BJP Karnataka's SC/ST/OBC and slum morcha workers, slamming the Congress for disrespecting B R Ambedkar while trying to burnish his own government's record regarding welfare of SC/STs and OBCs. Congress President Rahul Gandhi said that he was confident of his party's victory in the Karnataka election.

For the BJP, party president Amit Shah and the party's chief ministerial candidate B S Yeddyurappa will be campaigning in the state today, while Congress chief Gandhi and incumbent Chief Minister Siddaramaiah will campaign for their party on the final day.

Apart from Prime Minister Narendra Modi and Congress chief Gandhi, the Karnataka election campaign has also seen political heavyweights Sonia Gandhi and Uttar Pradesh Chief Minister Yogi Adityanath campaign for their respective parties.

The last day of campaigning for the Karnataka polls comes after Prime Minister Modi and Congress chief Gandhi were face-to-face in the state on the second last day for the campaigning. Working seriously on his 'Congress Mukt Bharat' mission, Modi used all of his oratory skills to lambast the Congress in his four election rallies on Wednesday. On the other hand, Gandhi said in his Basavanagudi rally that the people of Karnataka would reject Prime Minister Modi and the BJP. The Congress president also attacked the Prime Minister for being silent on the issue of alleged Dalit atrocities.

The election in Karnataka will be held on May 12 in 223 constituencies, out of the 224 constituencies of the Karnataka Legislative Assembly, while the counting of votes and announcement of result will take place on May 15. The election for one constituency has been postponed following the death of B N Vijay Kumar, the Jayanagar BJP candidate.

Here are the top ten developments regarding the May 12 Karnataka Assembly election 2018:

1) Rahul Gandhi says confident of Congress victory in Karnataka: Addressing a press conference in Bengaluru, Rahul Gandhi said that he was confident of a Congress victory in the Karnataka election. "I have been travelling around Karnataka for few months now... we all stood together and fought (the) campaign on fundamental issues. We've prepared a manifesto which is truly voice of the people," said the Congress president.