Prime Minister Narendra Modi's ruling party is likely to lose two heartland states while a third is too close to call, exit polls showed on Friday in the final test of popularity before the general election in May next year.
Surveys broadcast at the end of voting for five state assemblies showed the ruling BJP trailing behind the rival Congress in some areas.
The actual votes will be counted on Tuesday, and exit polls have been wrong in the past, partly because of the sheer scale of Indian elections involving millions of votes.
Foreign investors who largely remain bullish on India's long-term prospects, are watching the state polls closely for clues to the national vote.
But a divided parliament would make it difficult for the incoming government to carry out reforms in the banking sector and other areas.
In an interview to CNBC-TV18, Vikas Khemani, founder Carnelian Capital; Mihir Vora, director and CIO, Max Life Insurance; Ajay Srivastava, CEO, Dimensions Corp Financial Services and Deven Choksey of KR Choksey Investment Managers, shared their views on likely impact of assembly election results on Indian markets.
Vikas Khemani said the market has seen this happen multiple times how it was worried about Gujarat elections, then in Karnataka, so around any election outcome, there is always a lot of expectations, lot of things moving around and they will always last for may be two days or three days.
"So, whatever is the outcome, I believe that it will last two days and then the market will get back to normalcy, he said, adding, "however, assuming that the outcome goes against the government, I would say you will again see a short-lived correction or temporary narrative which is getting built that this is the trend to what is going to happen in 2019."
Mihir Vora said, "If you look at the exit poll numbers, they are all over the place. My guess is Rajasthan was more or less a consensus as to which way the election is likely to go, it was quite a strong pre-poll anti-incumbency."
So, a 2-1 or a 1-2 kind of a scenario on December 11 probably won't impact the markets too much, Vora said.
"A 3-0 may be a little weak for the market but again then we have to see what the margins are, if that is not too great then probably it will be an event which will impact the markets for a week or so and then we will be back to looking at the fundamental data," Vora added.
Ajay Srivastava said it is a great thing what is happening because what it shows is a very short journey from invincibility to fearful loses and the lesson for everybody is, you cannot play around with the economy and if you do the voters will penalise you.
"If it is a 3-0 or a 4-0, I think there will be a great relief in the market that the ruling party will come back and do something serious to the economic side of the business and correct things which have gone wrong," he said.
Deven Choksey said, "Rajasthan is already discounted as far as the market is concerned. In Madhya Pradesh, there could be a possibility of BJP losing but by what margin, that will have to be seen and whether all of them put together can seriously affect the economic agenda that the country is progressing with, is a question mark."
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With input from Reuters.