Markets pricing in BJP win in UP, unfavourable outcome could see 10% fall

Markets will remain range-bound but choppy till the outcome of the Assembly elections is known.

Sensex from its December lows, the market is headed for a period of volatility, as it gears up for the outcome of the ongoing Assembly polls. The outcome of the polls in Punjab, Uttar Pradesh (UP), Goa, Uttarakhand and Manipur — to be announced on March 11 — could create distractions or positives for the government and will be interpreted as a referendum on its note ban drive, experts say.

Experts say the markets will remain range-bound but choppy till the outcome of the Assembly elections is known. While most of them rule out a runaway rally in case of a favourable outcome, negative news can see the markets correct 8-10 per cent over time, they say.

“A phenomenal majority could be sentimental triggers that can push the markets to all-time highs; though I feel most of the positives are already priced in,” says U R Bhat, managing director, Dalton Capital Advisors.

Some analysts have raised a concern that markets are becoming expensive at current valuations. The Sensex is trading at a price-earnings multiple of nearly 22 times, which is high compared with 23 times underlying earnings reached in July last year, which was a five-year high.

“With no material change in earnings estimates and no visible evidence suggesting the risk of consensus earnings downgrades – seen over the past three consecutive years – is now firmly behind us, the liquidity-driven expansion in valuations looks unlikely to sustain,” wrote Abhay Laijawala, head of India research at Deutsche Bank Group in a recent report. Read more.

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