UP assembly elections are considered a bellwether for the general elections given that the state sends the highest number of Lok Sabha members during the parliamentary polls.

The commanding lead of the ruling Bharatiya Janata Party (BJP) in the UP state assembly elections on March 10 has provided a much-needed breather to the optimists on the Street.

At 2:10 pm, the BJP alliance in UP was leading in 260 out of the 403 seats, which was substantially higher than the mid-way mark of 202 seats suggesting that the party will form the government for a second successive term.

UP elections are considered a bellwether for the general elections given that the state sends the highest number of Lok Sabha members during the parliamentary polls.

Trends in the state election in UP often tend to repeat in the general elections subsequently. For investors, BJP’s overwhelming lead in UP elections reduces anxiety around continuity of policy momentum at the national level given that they might extrapolate it to a likely victory for the ruling party in the general elections two years later.

“Many of the states are showing their overwhelming acceptance to work done by the ruling party which is a good omen for investors going into the medium term as markets will discount continuity past general elections,” said Nitin Rao, chief executive officer at InCred Wealth.

That said, the resurgence in bullish sentiment in the market seen on March 10 is likely to prove temporary as greater concerns in the form of surging global crude oil prices and geopolitical crisis in Eastern Europe persist.

While global crude oil prices fell 13 percent on March 9 on a rare down day for the commodity this year, oil prices were still trading above the $112 per barrel mark representing a significant risk to the Indian economy.

India, a large importer of crude oil, expects crude oil prices to average a little over $70 per barrel in 2022-23, as per the Union Budget. However, brokerages such as Goldman Sachs and others have suggested that oil prices could sustain above the $100 per barrel mark for most part of 2022.

“We believe investors still need to be vigilant because the uncertainty of geopolitical standoff still looms large,” said Aishvarya Dadheech, a fund manager with Ambit Asset Management.

Dadheech believes commodity prices are least likely to see a secular downturn even after war subsides because sanctions will continue to disrupt the global supply chain. “Unless sanctions are withdrawn, the global markets can remain volatile in the coming months and India will not remain insulated,” he said.

Suyash Chodhury of IDFC Asset Management, in a recent note, pointed out that Russia’s exile from the international financial community has pushed the “floor” for any correction in global commodity prices higher.

Choudhury’s view is bad news for India Inc, which is struggling to preserve its margins amid multi-year high input price inflation and a lack of ability to pass on the full impact to the consumers.

Brokerage firm UBS Securities recently downgraded its stance on consumer discretionary stocks to ‘downgrade’ given concerns of pent-up demand post the second wave of the COVID-19 pandemic fizzling out soon and upward pressure on margins from higher raw material costs.

The Nifty 50 index’s inability to move beyond the day’s high after a more than 400 points rise at the opening of the day hints at a lack of confidence among the bulls. The index has given back more than 50 percent of its gains for the day.

“The market should be able to consolidate after today’s gains. I don’t think we will see more gap downs from here but 16,800 points will be a stiff barrier to cross for the bulls,” said an Indore-based trader.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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