May 16, 2018 / 6:39 AM / 6 days ago

Indian shares fall as state election outcome disappoints

* NSE index down 0.46 pct, BSE index 0.38 pct lower

* PSU banks dragged by PNB, Syndicate Bank

* Extremely positive about markets in long term - analyst

By Arnab Paul

May 16 (Reuters) - Indian shares fell on Wednesday as doubts over the composition of the next government in the southern state of Karnataka dampened investor risk appetite.

Prime Minister Narendra Modi's Bharatiya Janata Party (BJP)won 104 seats bit.ly/19s8ulR, falling marginally short of the 113 seats needed to form a government, while the opposition Congress clinched 78.

The Congress said it was ready to let regional party Janata Dal (Secular), which stood third with 37 seats, to form a government to stop the Hindu nationalist BJP from taking power.

However, analysts say the outcome of Karnataka’s election results only strengthens the BJP’s re-election prospects in 2019, something the markets will be optimistic about.

“Markets are at very high levels and hence very volatile, so every event will be met with overreaction,” said Sudhakar Pattabiraman, head of research operations at William O’Neil’s MarketSmith.

“Because of a few state elections coming up this year, expect markets to remain volatile but in the long term, things look extremely positive. There are strong indications that BJP will win the 2019 general elections.”

India also announced its trade deficit data on Tuesday, which slightly widened to $13.72 billion in April from $13.25 billion a year ago.

The broader NSE index was down 0.46 percent at 10,751.8 as of 0611 GMT, while the benchmark BSE index was 0.38 percent lower at 35,408.98.

Asian shares were down as well after North Korea called off talks with South Korea, throwing a U.S.-North Korean summit into doubt.

The index of state-run banks fell 3.3 percent, dragged down by Punjab National Bank (PNB) and Syndicate Bank Ltd, which fell 13.7 percent and 10.7 percent respectively, after the duo posted a March-quarter loss on Tuesday.

PNB reported a record quarterly loss of 134.17 billion rupees ($1.98 billion) with analysts worried about the bank’s growth prospects, while Syndicate Bank posted a loss of 21.95 billion rupees compared with a profit of 1.04 billion rupees last year.

Reliance Communications Ltd dropped to its lowest in six months after India’s bankruptcy court allowed a insolvency plea filed by Sweden’s Ericsson.

$1 = 67.8100 Indian rupees Reporting by Arnab Paul in Bengaluru; Editing by Sunil Nair

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