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The better than expected performance of the ruling Bhartiya Janata Party (BJP) in Haryana elections has come as a relief for investors. India along with China are the only two major stock markets in Asia that are trading with gains on Tuesday afternoon. In the run-up to Tuesday’s election results, the Nifty 50 lost 4 percent in four trading sessions amid escalation of geopolitical tensions in Middle East and selling by foreign institutional investors.

Exit polls had predicted a loss of power for BJP in Haryana. But early results show a majority, even if a slim one, for the ruling party in Haryana, even though it is trailing the opposition group in Jammu and Kashmir.

If the trends hold true in Haryana, then the results can give a fillip to the Narendra Modi-led National Democratic Alliance (NDA) at the centre. Although state elections do not have a bearing on economic policies, investors feel reassured on the policy continuity front and that fiscal discipline will be maintained. 

The BJP had fallen short of gaining absolute majority in Lok Sabha elections held earlier this year. A resilient show in Haryana will boost its morale and help it better prepare for upcoming state elections in Maharashtra and Jharkhand.

Yet, as investors bask in the glory of BJP’s electoral performance and India’s relative stability in the uncertain world, they should not lose sight of the market internals.

Earnings, a crucial driver of the equity markets, are losing steam. Aggregate earnings of the Nifty 50 companies are projected to grow at a muted pace for second consecutive quarter in Q2 FY25, illustrates our Chart of the Day. “The earnings revisions have turned adverse with downgrades of ~6 percent in the Nifty EPS since July 2024,” points out Motilal Oswal Financial Services. EPS is earnings per share.

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The earnings slowdown is not just being driven by cyclical factors such as a high base and low commodity prices. Power demand, monthly retail automobile sales and updates from domestic market focused companies indicate subdued demand conditions in the recently concluded quarter.

Simultaneously, adverse weather conditions and escalating tensions in the Middle East are posing renewed risks to inflation. Crude oil prices rose sharply in recent days. With valuations in India trending way above long-term averages and China pulling in money from foreign investors with a stream of stimulus measures, the chances of Indian market underperformance in the near term has risen.

“While investors have been concerned about India’s valuations for some time, we think valuations will now increasingly become a factor should there be any slowdown in foreign and even domestic flows,” warn analysts at Nomura. Amidst the changing global scenario, it is vital that earnings keep up pace with investor expectations. The September 2024 earnings season will provide vital cues.

Investing insights from our research team

Garuda Construction and Engineering: Why the IPO doesn’t look robust

NBFC Q2 Preview: Growth holds up with stable margins

Krsnaa Diagnostics: Creating new opportunities for itself 

Tracker

Auto sales rev up, but consumer sentiment, power consumption decline

What else are we reading?

How should investors deal with the war's impact on oil, equity markets?

For China, economics comes before politics in the Middle East

RBI’s draft norms on bank subsidiaries take aim at plugging regulatory holes

Personal Finance | Should you add sectoral and thematic funds to your portfolio?

Overreaction watch, no-landing edition (republished from the FT)

India's Legal System: Legal aid for the poor or poor legal aid?

Are Chinese stocks breaking out or breaking bad?

Human-AI Collaboration: Imperative to strike the right balance between futurising and humanising

Tech and Startups

GCC industry seeks higher infra investment for success of 'Beyond Bengaluru’ push

Technical Picks: Marico, HDFC Asset Management Company, Central Depository Services Ltd, IDFC First Bank.

R Sree Ram
Moneycontrol Pro