Sensex, Nifty brace for a rough day with Urjit Patel's exit, uncertainty over BJP win in state elections

The Sensex and Nifty are likely to open lower and trade in a volatile range today amid a series of key events such as announcement of Assembly election results for five states, resignation of RBI governor Urjit Patel and tepid international markets on uncertainty over Britain's status in the European Union. The election results to be announced today will signal the mood of the voters as the country goes to Lok Sabha polls within a span of next six months.

The SGX Nifty, a key indicator for the opening of Indian markets was trading 163.50 points or 1.55% lower signalling a lower opening for the Sensex and Nifty.

Exit polls for three key states - Madhya Pradesh, Rajasthan and Chhattisgarh- show a tough challenge for the ruling BJP which could disrupt the pace of economic reforms , a key worry for the markets.

Also read: RBI Governor Urjit Patel makes loud noise with silent exit

On Monday, the Sensex slumped 713.53 points, or 2 per cent, lower at 34959.72, and the NSE Nifty ended at 10477.3, down by 216.4 points or by 2.02 per cent after exit polls indicated a tough fight for the BJP in the state assembly elections.

Here's a look at the factors which are likely to move the market today.

RBI governor's resignation

The surprise resignation of Urijit Patel a day before the assembly elections results is a big worry for the equity and the currency market.  

Though Patel cited personal reasons for his resignation, the  apex bank's disagreement  with the government of late could be behind the surprise move. RBI's strict 90-day NPA policy issued via a circular in February this year; Prompt Corrective Action against 11 poorly performing banks; systemic liquidity and sharing of RBI's Rs 9.69 lakh crore worth of reserves are some of the contentious matters of disagreement between the two.

His resignation came 10 months before his three-year tenure was to get over.

The rupee which tumbled 50 paise to close at 71.32 against the US dollar on Monday could fall in early trade after the resignation of Patel which came after market hours yesterday .

RBI is the nodal agency which keeps a strict vigil on the rupee movement in the country.

Urjit Patel's move to quit as the Governor of the Reserve Bank is a jolt to investors as it shakes investor trust in its autonomy and will have an impact on the markets, warn analysts.

"This does not bode well for the RBI, government, or the economy. There will be a knee-jerk reaction Tuesday in the market and coupled with the election results, it is going to be a very volatile day," Anurag Bhatia, chief executive at Minance, an investment management firm, said.

Assembly Elections Results

The Congress looked set to unseat the BJP in Rajasthan and was giving a tough fight in Madhya  Pradesh and Chhattisgarh, show exit polls announced last week. Challenges for the BJP forming the government in these three key states will not bode well for the market in the short term since pace of economic reforms is likely to take a hit with a change in the power equations.

Global markets

Asian markets were mixed in narrow trading on doubts that US and China can manage to resolve their festering trade dispute.

Japan's benchmark Nikkei 225 lost 0.4 percent to 21,127.00 and South Korea's Kospi added less than 0.1 percent to 2,055.07. Hong Kong's Hang Seng edged 0.1 percent higher to 25,768.25. The Shanghai Composite rose 0.3 percent to 2,586.47. Australia's S&P/ASX 200 added 0.2 percent to 5,562.50. Shares rose in Taiwan but fell in Singapore and Indonesia.

The Dow Jones Industrial Average lost as much as 507 points in early trading before ending with a gain of 34. Energy companies fell as the price of crude oil dropped 3 percent, giving back its gains from last week. Banks fell as investors expected slower increases in interest rates.

Weak economic data in China and Japan and uncertainty over Britain's status in the European Union knocked down overseas indexes. The British pound dropped to its lowest level in more 18 months after Prime Minister Theresa May postponed a vote on the country's departure from the European Union.

Tensions between the US and China kept climbing following the detention of Huawei Chief Financial Officer Meng Wanzhou. She is suspected of trying to evade US trade curbs on Iran, and she was detained while changing planes in Canada.

The S&P 500 index gained 4.64 points, or 0.2 percent, to 2,637.72. The Dow added 34.31 points, or 0.1 percent, to 24,423.26. Technology companies, which have fallen sharply since October, did better. The Nasdaq composite rose 51.27 points, or 0.7 percent, to 7,020.52.

Edited by Aseem Thapliyal