In exactly two weeks from now the voting would have been completed. Of the nine rounds, six have been completed and 349 of the 543 seats voting has taken place. April series of futures has passed off without any super volatility. It is the month of May which would have all the action.
The markets without doubt are rooting for a change in government led by the current Gujarat Chief Minister as its PM candidate. The opinion polls for all they are worth, newspapers and also the betting market are all indicating that the BJP led NDA would win this round of elections. In the opposite camp the body language is down and has become extremely negative. For every small thing they are running to the Election Commission alleging poll violation. One wonders whether this should be treated as ignorance of the code or their last hope that the only way they can benefit is if the EC hauls up the opposition.
To add to the hullabaloo in the political scenario, the Congress has brought in Priyanka Vadra and made life that much easier for the BJP. Her husband is at the centre of a land scam and was on the side-lines till Priyanka stepped in. The current situation of Ms Vadra as far as the government is concerned is that she is at best a member of the Congress party and nothing more than that. She is neither a spokesperson of the party, not active in politics. Trying to bring her in to the centre stage at this late time was fraught with danger as it signalled that the Rahul baba campaign has failed. It also opened the floodgates of the Vadra issue as now there would be no holds barred in the slug fest. The Congress from trying to defend Vadra earlier as being a personal affair of the President of the Congress Party now has to defend Priyanka as she is campaigning herself and is open to attack. The unwritten law of family members being kept out of politics was over when NaMo’s wife was dragged into the campaign by not just the Congress party but even members of the first family of the Congress.
The campaign has become dirty and probably the worst in so many elections. The good thing about it is that the first time voters are enthused with their right to vote and are exercising it. Moving from politics to the market, it appears that the markets are now bracing themselves for a reality check as well. If one remembers that in 2004 the markets fell when the NDA did badly. Similarly in 2009 the markets rallied very strongly and hit upper circuits when the UPA was returned to power. This time I strongly believe that there will be no circuits either on the upside or the downside irrespective of the results.
The most expected outcome is that the BJP led NDA with its pre-poll alliances will form a stable government. Variations to this expectation on the positive side are that the BJP stand alone will get 230-240 seats on their own and thus the dependence on alliance partners would be limited. On the other side there is also a school of thought that if the NDA does a little worse than expected than there could be a search for some alliances and the compromise maybe in the form of NaMo not becoming PM but somebody else from the party becoming the PM. Besides these variations there are theories floating around that the electorate would reject the Congress and the BJP and throw up a hung assembly. In the last 4-5 years except Delhi and Jharkhand this has typically not happened. There is a decisive mandate for one party each time. The best example was the Uttar Pradesh assembly where the people voted for the SP and gave them a clear mandate. I strongly believe that 2014 would not be any different.
Playing the contrarian and fearing the worst that god forbid the electorate does throw up a mess of a house, then what? From the current levels of 6,800, the NIFTY could fall in a knee jerk reaction to around 5800-6000 and then recover. Talks of a third front seem a little out of place simply because the total number of seats that these parties are contesting makes it imperative that they win almost 100% of them to have a number anywhere close to forming a block to enable the President to even discuss with this group. Secondly within this group we have parties who are opposed to each other and would never form part of the same government. It’s a different issue when they support another government. Imagine AIADMK and DMK in the same government when they are the ruling party and opposition in Tamil Nadu or SP and BSP in Uttar Pradesh. I believe this theory should be simply dismissed as being not possible.
Market survives on optimism and believing that the future is bright. It is this feeling that drives markets. Currently the markets are betting on this optimism in the elections that there will be a change in government and the new government will be stable. The upside immediately may not be there but with valuations currently being reasonable, better administration and decision making could make all the difference. The downside excepting a complete debacle is fairly limited.
Let’s hope the 16th of May brings good tidings to the market.
