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The ruling party had lost power in three key states on Tuesday, dealing Prime Minister Narendra Modi his biggest defeat since he took office in 2014 and boosting the Opposition ahead of national polls next year.
A key worry for markets would be if the domestic equity investors who started to invest in markets along with Modi's win in May 2014 start to reduce new investments, it says.
The brokerage says state elections results will likely increase the fears of an unstable government among retail investors and this could impact market inflows. Slowdown in flows could impact market multiples.
Modi is still the favourite to win 2019, but Congress' wins increase the probability of a united Opposition, CLSA says.
Citing previous election results, Motital Oswal Research says there is no direct co-relation between outcome of the “semi-final” state polls and Lok Sabha polls.
“Expect government to turn incrementally more populist in its remaining terms and provide relief/handouts to different segments of the electorate,’’ it says.
Motilal Oswal expects focus to revert to fundamentals, and sees volatility to be elevated going into CY19.
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