Exit polls may lift markets briefly, but oil remains key risk for equities

Indian equity markets may get a short-lived sentiment boost from signs of political continuity emerging from the recent State election exit polls, even as global oil prices and domestic macro pressures will remain the dominant drivers of market direction.

Exit polls for Assembly elections across Assam, Kerala, Tamil Nadu, West Bengal and Puducherry broadly indicate status quo outcomes, with incumbents expected to retain power in most regions and a tight race in West Bengal. For markets, this translates into a fleeting sense of stability rather than a decisive trigger, according to Kotak Institutional Equities’ latest strategy report.

“Markets may continue to debate more on oil versus macro-calculus, while giving a brief cheer for electoral stability,” the report said.

However, it cautioned against over-reliance on such projections. “Exit polls have had a mixed track record in India recently,” it said, as seen in the 2024 Lok Sabha elections and a growing reluctance among voters to disclose preferences.

Exit polls indicate the Bharatiya Janata Party (BJP) retaining Assam and Puducherry, the UDF returning in Kerala, and the DMK-led alliance holding Tamil Nadu. West Bengal, however, remains too close to call, with the possibility of a tighter-than-expected outcome.

durability test

Even if election outcomes align with projections, the upside for equities may be capped. Kotak expects any rally to fade quickly as investors refocus on more pressing concerns. “The durability of any rally will be tested quickly, as the trajectory of crude oil remains the single largest short-term risk variable,” it said.

With no major State elections scheduled until early 2027, the Centre is entering what the brokerage describes as an “election-free corridor” of about 10 months—potentially allowing policymakers to shift focus to economic management. “Government enters a relatively election-free corridor… may firmly focus on managing India's weakening macro environment,” the report said.

The government is likely to prioritise managing a weakening macro environment marked by elevated crude prices, risks to food inflation from an uneven monsoon and a widening current account deficit.

Policy responses could include rationalising energy subsidies, accelerating trade diversification and pushing ahead with the proposed India-US bilateral trade agreement. At the same time, a stronger position in the Rajya Sabha may support smoother passage of legislative measures, barring constitutional amendments.

For equity investors, however, the near-term playbook remains cautious. The brokerage expects markets to trade in a narrow range as optimism from elections gives way to fundamentals — earnings growth, oil prices and policy action on fuel pricing.

Kotak estimates earnings growth for the Nifty 50 at 7 per cent in FY26 and 19 per cent in FY27, while noting that nearly half of index profits have limited direct linkage to the domestic economy, a factor that could cushion, but not fully insulate, markets from macro shocks.

In effect, while political continuity may offer a temporary cushion, the trajectory of crude and macro stability will continue to set the tone for Dalal Street.

Published on May 1, 2026