Election outcomes are tough to predict, especially in a politically turbulent
environment. Congress and the opposition Bharatiya Janata Party (BJP) are walking a tightrope, and neither is likely to win convincingly in next year’s general elections. India’s next government is likely to be weak, made up of regional parties, each with its own agenda and incapable of pursuing essential bold reforms. The fact that growth did not deteriorate during the tumultuous coalition rule between 1997 and 2000 offers some solace; but with the macro outlook fragile, we would stick with quality cyclicals and stocks with earnings visibility. The mood among voters suggests that the ruling United Progressive Alliance (UPA), led by Sonia Gandhi’s Congress Party, will lose next year’s general election and the BJP will emerge as the single largest party. To rule, a party needs the support of 272 out of the 543 members of parliament. The BJP would need to secure 200-plus seats of its own to form a strong and stable government capable of pursuing policy reforms. That’s a tall order at this stage of the game. The Congress Party would find it easier to form a coalition, but short of 150 seats it would not have the mandate to form a government, even with coalition partners. Of course, a government with a clear majority is best placed to drive India’s growth revival. Both main parties will try to woo regional blocs to form alliances. Samajwadi Party and Janata Dal United both have strong Muslim ties and are unlikely to side with the BJP. Several others are cold on BJP’s would-be PM Narendra Modi. A coalition with Congress support would be an awkward outcome given diverse policy agendas, but it is feasible. The United Front, a 13-party coalition held power for two years after the 1996 elections in one of the most unstable of political environments, yet GDP averaged above trend at 6.6%. Given unprecedented macro headwinds, this time will be different. A 3-4% swing in the vote can make a big difference to election results due to India’s fragmented politics. Some 70 million new voters, representing 10% of the voters, will take part, largely due to India’s young demographics. A surprise outcome cannot be ruled out. Congress’s unexpected win in 2004 saw the market fall 17% in two days. In 2009, the market rallied 17% over two days after the incumbent’s mandate was renewed convincingly. A third-front coalition government would impact equity markets the most. A defensive portfolio would work best in such a scenario. A strong mandate to the BJP - or even Congress - would be ideal for cyclical plays. But we see a 60-70% probability of a weak, indecisive coalition coming to power and hence we remain cautious. We prefer exporters and stocks with revenue and earnings visibility. -- -- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE. http://www.niftyviews.com/ Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture.The administrator of www.Niftyviews.com just provide a platform for the authors to express their opinion and take no gurantee for the genuineness of the same." --- You received this message because you are subscribed to the Google Groups "TEAM STOCKRESEARCHERS" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. For more options, visit https://groups.google.com/groups/opt_out.
