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India Strategy
Uttar Pradesh State
Elections: Too Close to Call
We hosted Dorab Sopariwala, India's leading
psephologist, on a call with investors: The topics
were the ongoing state elections, the likely results, and
their implications for national politics. Here is a synopsis
of the discussion.
UP elections – by the far the most crucial: Of the five
states going to poll, Uttar Pradesh is the most important
one given its sheer size. However, the results may be
too close to call. No doubt the turnout has increased but
seasonally adjusted (given the shift in timing to the
winter months), the increase is about 5%. That said, it is
hard to tell who has come to vote and hence which party
may benefit. Tight fights seem to be of the order given
how small vote swings seem to be affecting seat count.
A complex election and difficult result to predict:
• The Bahujan Samajwadi Party (BSP) suffers from
incumbency, but Chief Minister Mayawati has tried
to overcome it by aggressively churning her
candidates. She has also has seemingly delivered
by doubling the state's domestic product in nominal
terms over the past five years (real growth of around
7%, which is not necessarily a strong relative
performance). Still, there could be voter fatigue due
to corruption allegations.
• The Samajwadi Party (SP) has a fresh tailwind with
Akhilesh Yadav and does not have the headwind of
being an incumbent as it did in 2007. If the results
are close, Ajit Singh's party (currently a Congress
ally) could play a prominent role in government
formation.
• Both the Congress and the BJP suffer from lack of
local leadership and grassroots presence in the
state. The reason UP elections get complicated is
that it is a four-way fight, unlike most other states
which are straight fights and hence easier to predict.
Hung assembly not ruled out: It is quite possible that UP
goes to President's rule if neither of the two regional parties
manage to swing a majority (in excess of 203 seats) or a
significant seat count (in excess of 150 seats). Both the
Congress and BJP have announced that they will not support
another party to form a government.
Possibility of mid-term polls: That said, such an outcome is
unlikely to affect the stability of the central government. In all
probability, neither the SP nor the BSP is likely to oppose the
Congress at the center of key issues, since neither may want to
go into national polls too quickly. Indeed, a mid-term poll is
more likely if the Congress does exceptionally well in the UP
polls (wins more than 100 seats – a somewhat unlikely event).
Even so, given the cost of fighting elections and the uncertainty
of winning, the probability of mid-term polls remains low.
Implications for the central government: If the Congress
does register a strong performance – i.e, it wins more than
60-70 seats – it may be emboldened to pursue some
controversial reforms. The UP elections also carry importance
because they could influence the Congress' position in the
Rajya Sabha (the Upper House of Parliament goes to polls in
April) and presidential election in June.
Our conclusion: The market is likely to consolidate or even
correct in the coming days as it prepares for some big events
including the state election results, the budget and the next RBI
policy. We remain focused on stock-picking as a strategy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Strategy
Uttar Pradesh State
Elections: Too Close to Call
We hosted Dorab Sopariwala, India's leading
psephologist, on a call with investors: The topics
were the ongoing state elections, the likely results, and
their implications for national politics. Here is a synopsis
of the discussion.
UP elections – by the far the most crucial: Of the five
states going to poll, Uttar Pradesh is the most important
one given its sheer size. However, the results may be
too close to call. No doubt the turnout has increased but
seasonally adjusted (given the shift in timing to the
winter months), the increase is about 5%. That said, it is
hard to tell who has come to vote and hence which party
may benefit. Tight fights seem to be of the order given
how small vote swings seem to be affecting seat count.
A complex election and difficult result to predict:
• The Bahujan Samajwadi Party (BSP) suffers from
incumbency, but Chief Minister Mayawati has tried
to overcome it by aggressively churning her
candidates. She has also has seemingly delivered
by doubling the state's domestic product in nominal
terms over the past five years (real growth of around
7%, which is not necessarily a strong relative
performance). Still, there could be voter fatigue due
to corruption allegations.
• The Samajwadi Party (SP) has a fresh tailwind with
Akhilesh Yadav and does not have the headwind of
being an incumbent as it did in 2007. If the results
are close, Ajit Singh's party (currently a Congress
ally) could play a prominent role in government
formation.
• Both the Congress and the BJP suffer from lack of
local leadership and grassroots presence in the
state. The reason UP elections get complicated is
that it is a four-way fight, unlike most other states
which are straight fights and hence easier to predict.
Hung assembly not ruled out: It is quite possible that UP
goes to President's rule if neither of the two regional parties
manage to swing a majority (in excess of 203 seats) or a
significant seat count (in excess of 150 seats). Both the
Congress and BJP have announced that they will not support
another party to form a government.
Possibility of mid-term polls: That said, such an outcome is
unlikely to affect the stability of the central government. In all
probability, neither the SP nor the BSP is likely to oppose the
Congress at the center of key issues, since neither may want to
go into national polls too quickly. Indeed, a mid-term poll is
more likely if the Congress does exceptionally well in the UP
polls (wins more than 100 seats – a somewhat unlikely event).
Even so, given the cost of fighting elections and the uncertainty
of winning, the probability of mid-term polls remains low.
Implications for the central government: If the Congress
does register a strong performance – i.e, it wins more than
60-70 seats – it may be emboldened to pursue some
controversial reforms. The UP elections also carry importance
because they could influence the Congress' position in the
Rajya Sabha (the Upper House of Parliament goes to polls in
April) and presidential election in June.
Our conclusion: The market is likely to consolidate or even
correct in the coming days as it prepares for some big events
including the state election results, the budget and the next RBI
policy. We remain focused on stock-picking as a strategy.
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