MUMBAI (Reuters) - The BSE Sensex is expected to fall for a third day on Wednesday, as a poor performance by the Congress party in the assembly elections knocks confidence and investors look to the upcoming budget to gauge the government's commitment to reform.
The Congress party flop in the politically vital state of Uttar Pradesh on Tuesday is a blow to the government of Prime Minister Manmohan Singh, reducing his scope to re-launch reforms and reverse a slowdown in economic growth.
India is set to unveil the annual budget on March 16.
"(The poll) raises the risks to the current rally, as expected reforms may stall; the macro could strain, and capex may slow. In effect, economic revival gains that the market has started factoring in - could be challenged," wrote Citi Investment Research & Analysis in a research note.
Investor sentiment is also likely to be undermined by weaker global markets, with renewed uncertainty over Greece's bailout and mounting worries about slowing global economies.
State-run oil retailers Indian Oil Corp , Hindustan Petroleum Corp and Bharat Petroleum Corp will be watched after the Hindu Business Line reported the government had given the companies 70 billion rupees as compensation for selling fuel at below-cost prices.
At 0250 GMT, the MSCI's broadest index of Asia Pacific shares outside Japan was down 0.6 percent, while Japan and South Korea were both down 0.7 percent.
The Nifty India stock futures in Singapore were marginally lower, suggesting a sluggish opening for the market.
India's benchmark 30-share index fell 1.1 percent on Tuesday to 17,173.29, its lowest close in more than five weeks.
STOCKS TO WATCH
* Era Infra Engineering is likely to rise after the company said late on Tuesday that it won a contract worth 5.6 billion rupees from Delhi Metro Rail Corporation.
* Fertiliser companies like Coromandel International , Zuari Industries , Gujarat Narmada Valley are likely to fall after they deferred imports of over 2 million tonnes of potash on low demand.