The great Bengal disconnect for Nifty bulls: 3 massive worries that are overshadowing the BJP election win

West Bengal’s historic shift to BJP rule, the kind of political earthquake that would typically fuel a multi-day Dalal Street rally, lasted barely a few hours before global realities crushed the party. The Sensex ended nearly 252 points lower, and the Nifty fell close to 24K on Tuesday as surging crude oil, a rupee in freefall, and the spectre of sustained foreign selling overshadowed what should have been a celebration of policy continuity and investment potential.

After rallying nearly 1,000 points Monday morning as election results confirmed the BJP’s Bengal victory, the Sensex pared gains to close just 356 points higher, a warning shot that sentiment alone wouldn’t carry the market. By Tuesday, the disconnect was complete.

3 factors are drowning out the Bengal bulls:

1) Crude oil reality

The resumption of hostilities in the Strait of Hormuz and Brent crude spiking back to around $113 have become the dominant market narrative, overwhelming any domestic political positives.”The sentimental boost provided by the BJP’s electoral victory in W Bengal will not last,” Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, said bluntly. “The market trend will be guided by the developments in West Asia, particularly in the Strait of Hormuz. The resumption of hostilities in the Hormuz region and Brent crude again spiking to around $113 are headwinds for the market.”

Investors ignored the gains for the BJP in states such as West Bengal and a third term in Assam on the belief that higher import bills could weaken macro-economic fundamentals, reduce purchasing power, and earnings.Nomura flagged an uncomfortable policy choice now looming. “The strengthening of BJP’s political foothold could reduce India’s political risk premium at the margin, especially at a time when the war in Iran is leading to unpopular price hikes and supply-side shortages,” the brokerage said.”However, we expect markets will be wary of the prospects of hikes in petrol and diesel prices now that the state elections are over. While the government has pushed back against this in the past, having already cut fuel taxes, a senior government official has been reported to suggest that discussions on fuel price hikes are ongoing to reduce under-recoveries of oil marketing companies.”JM Financial warned that despite the visibility of incremental capex demand in West Bengal, there is a risk of curtailment in central government capex due to likely fiscal impact of the West Asia crisis.

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2) Rupee crisis

The Indian rupee slid to a record low on Tuesday after U.S.-Iranian strikes in the Gulf rattled markets, dimming hopes for a resolution and deepening concerns over risks confronting the oil-importing economy.

The currency weakened to 95.40 per dollar, down 0.3% on the day, eclipsing its previous all-time low of 95.33 hit last Thursday. The rupee has declined 4.5% since the Iran war erupted on February 28, in line with other currencies of oil importers in Asia.

UBS has revised its year-end forecast for the rupee to 96 per dollar, weaker than its earlier forecast of 94, while analysts at ANZ expect it to weaken to 98 by March 2027.

“The underlying issue for INR remains the balance of payments. Hence, measures to increase capital flows need to be the key policy priority,” analysts at UBS said in a note.

The US 10-year bond yield rising to 4.44% and the rupee sliding to fresh record low levels are unfavourable from a foreign inflows perspective.

Also Read | Election impact on stock market explained: What likely BJP win in West Bengal means for investors

3) FII threat

While FIIs bought over Rs 2,800 crore worth of shares in Monday’s trading session, analysts say that could be a one-off. In recent weeks, HSBC and JP Morgan have downgraded Indian stocks.

“While Monday’s election outcome provided a boost to market sentiment, investor focus remained on geopolitical developments, with the West Asia conflict still unresolved and crude prices elevated,” said Rajesh Palviya, head of technical and derivatives research at Axis Securities. “Although the ruling party’s victory supports sentiment, a sustained market uptrend will likely depend on positive geopolitical cues.”

Emkay highlighted the longer-term fiscal concerns that could temper any Bengal optimism. “We believe BJP-led governance in states, particularly WB, could improve Centre-state alignment and accelerate administrative approvals for central projects, benefiting regional industrial growth in the medium term,” the brokerage said. “However, the immediate challenge lies in maintaining fiscal discipline against the backdrop of populist-driven spending trends, which have proven to be a winning electoral formula, but threaten the long-term fiscal health of states and their productive spending.”

With most large-cap earnings now largely behind us, markets are searching for fresh triggers to determine the next directional move. Vijayakumar summed up the near-term outlook: “In the near-term, the market will respond to Q4 results and management commentary.”

For now, West Bengal’s political transformation remains a medium-term story that the market simply can’t afford to price in while oil burns above $113 and the rupee sets fresh lows by the day.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)