All eyes are on the results of the Karnataka state elections due on May 15. There could be some strong upward movement should the BJP form the government in the state.

We have seen predictions go wrong in the past exit polls, though most Gujarat exit polls, predicted the BJP to win.

Nevertheless, a BJP victory and forming a government on its own would mean that the markets could hit historic peak again.

In the event of a non-BJP government in Karnataka, we see little reason for worry, as there could be a knee-jerk reaction and then it would be business as usual for the markets.

Every state election from here on would be eagerly watched for cues to see if the Narendra Modi government remains popular and whether there is a possibility of the present dispensation continuing beyond 2019 when elections would be held.

The markets are unlikely to fall anytime soon and if investors were waiting on the sidelines to buy, they may have to wait a lot more longer. This is because the markets are flush with money flowing into equity mutual funds and there is little hope for a sharp fall.

As per the data released by the Association of Mutual Funds in India (AMFI), money under management by mutual funds increased by Rs. 1.37 lakh crore to an all-time high of Rs 23.25 lakh crore in April as redemption pressure due to introduction of LTCG tax on equity funds with effect from April 1, 2018 eased.

So, a small downside in case of an adverse result is likely, though we might see an immediate jump once again, as mutual funds who are sitting on cash rush to buy.

So, if the BJP forms the government, expect a new peak, and if they do not, expect a small reaction, which will be immediately bought into by mutual funds, who are sitting on a pile of cash.

GoodReturns.in