Stock markets head into crucial week amid state elections, crude oil volatility

Stock markets are heading into a crucial week, with investors likely to keep a close watch on state election results, crude oil prices and the ongoing Middle East conflict. Vote counting for assembly elections in West Bengal, Tamil Nadu, Kerala, Assam and Puducherry will begin on Monday, May 4, and analysts believe the results could influence market sentiment in the short term.

Last week, in a holiday-shortened session, the BSE Sensex gained 249.29 points or 0.32%, while the NSE Nifty rose 99.6 points or 0.41%. "The most immediate catalyst will be the outcome of key state elections, with investors closely watching whether the ruling party at the Centre can wrest West Bengal from Trinamool Congress and make meaningful inroads into opposition-ruled Kerala and Tamil Nadu, where the Bharatiya Janata Party (BJP) currently has a limited presence," Hariprasad K, Research Analyst and Founder, Livelong Wealth, said.

Along with domestic politics, investors are expected to track developments in the Middle East, especially around the US-Iran conflict and the Strait of Hormuz, as these could impact crude oil prices. Hariprasad said crude remains the biggest macroeconomic factor for India. "With Brent prices sustaining elevated levels amid ongoing tensions around the Strait of Hormuz, inflation risks remain pronounced. For an import-dependent economy like India, persistently high crude prices exert pressure on the rupee—currently near record lows—and weigh on corporate margins as well as fiscal dynamics," he said.

Ajit Mishra, SVP, Research, Religare Broking Ltd, said crude oil trends would continue to be the main external factor for markets. "Crude oil price trends will remain the primary external variable, with the ongoing US–Iran standoff and closure of the Strait of Hormuz likely to keep volatility elevated," Mishra said. He added that key economic data releases this week, including HSBC Manufacturing PMI on May 4, Services and Composite PMI on May 6, and foreign exchange reserves data on May 8, will also be important for investors.

The Q4 earnings season will continue this week, with major companies such as Ambuja Cements, BHEL, Hero MotoCorp, Mahindra & Mahindra and Bajaj Auto set to announce results. Ponmudi R, CEO at Enrich Money, said markets are likely to remain volatile and driven by news flow. "Markets in the week ahead are likely to remain volatile and heavily news-driven. Key attention will remain on the evolving US–Iran dynamic—particularly whether the ceasefire holds, the progress of diplomatic talks, and any developments related to the Strait of Hormuz," he said.

Santosh Meena, Head of Research at Swastika Investmart Ltd, said election results, especially in West Bengal, may trigger short-term volatility. "This week, markets are expected to initially react to the outcome of state elections, particularly in West Bengal, which could trigger 1-2 days of volatility," he said. He added that while crude prices have eased slightly after nearing $120 per barrel, any fresh rise could hurt Indian equities. "Any fresh surge in oil could exert renewed selling pressure on Indian equities, while a sustained decline would likely improve sentiment. Developments around US-Iran relations will be a critical driver of crude volatility. With the Q4 earnings season in full swing, stock and sector-specific movements are likely to continue. FII flows and rupee movements will also remain key factors to watch," Meena added.