Market watchers turn vote gazers

UBS Research sees Nifty at 6,800 after 2014 elections

Markets are driven by what seems ahead. The Street is busy analysing life after the 2014 general election. Equity strategists, used to analysing profit and loss figures, are now also busy in scanning data on the electorate, past party vote share, importance of the first-time voter and other seemingly relevant factors. Given the uncertain record of opinion polls, economists and equity strategists are trying to assess the mood, including whether there is a Narendra Modi wave. They’ve been in the field, too, and the outcome is interesting. Among the key takeaways:

Any non-Congress government will be good for the economy: It’s known that both domestic and foreign investors are positively inclined towards Narendra Modi but less so towards the ruling Congress-led coalition. According to UBS Global Research, “The markets worry about a potential ‘Third Front’ government, given the increasing fragmented polity but history suggests that such a dispensation can also deliver in terms of policy making. Our view remains that any new government is more likely to take steps to course-correct the economy.” Adding: “The Nifty could potentially reach 6,800 (a 9.2 per cent rise from current levels) in the second half of 2014, post elections, based on 15 times the FY15 estimate of price-earnings, assuming a 15 per cent earnings growth in FY15.” (Click here for charts)

Modi alone can’t deliver a victory: Most analysts believe so. According to Goldman Sachs, opinion polls suggest a BJP-led alliance has a lead over the Congress-led one. However, despite an anti-incumbency mood and Modi’s popularity, the polls suggest the BJP-led alliance might not get a majority. However, analysts are also aware that opinion polls do tend to go wrong.

In any case, many political analysts believe 200 is the new 272. If the BJP manages to cobble 200 seats, it could manage to bring together the remaining 72, say Gautam Chhaochharia and Sanjena Dadawala of UBS, in their note.

Freebies alone did not get UPA a win in 2009; urban votes helped: In 2009, the Congress emerged as the largest party, with a two per cent rise in its vote share. Another big factor was that urban seats had increased to 200 in 2009; so, rural freebies can’t be the complete story.

Also, that urban and rural voters vote differently is not necessarily true. The Congress fared well in both constituencies; 28.4 per cent in rural areas and 29.1 per cent in urban ones; the BJP got 18.9 per cent and 18.5 per cent, respectively. The Congress-led UPA saw its urban voteshare increase by four per cent; the BJP-led NDA coalition saw its share drop by 14 per cent in urban areas.

Swing states will matter for Modi: Political analysts and equity strategists feel those with over 40 Lok Sabha seats each — UP, Maharashtra, Andhra, Bihar, Bengal, Tamil Nadu — could determine the NDA performance. Axis Capital sent a team of analysts to small towns and cities and says: “We visited seven (Maharashtra, Gujarat, UP, MP, Chattisgarh, AP, TN) states which represent 50 per cent of the total Lok Sabha seats. Of these, three have had BJP governments for 10 years. The swing states that we visited are UP, Maharashtra, AP & TN.”

The report further says farmers in UPA-governed states (Maharashtra, UP) are weary of its unmet promises but farmers in BJP-governed states (MP, Chattisgarh, Gujarat) are content with their progress. Andhra is an exception.

Outcome of coming state elections not a predictor: Political scientists have been saying for a while that voters tend to vote differently in state and general elections. In 2003, notes India Infoline, the BJP went won three of the largest but lost the general elections in 2004. A 2-2 verdict in 2008 did not forewarn of a landslide win for the Congress in 2009. In 1998, the Congress won all four assembly elections but lost the 1999 general elections. So, the November-December polls should not be treated as a national sample.

Do first-time voters matter? The general elections will see 120 million first-time voters, 15 per cent of the entire electorate. The reason this figure gets importance is because the total vote share of the Congress in 2009 was 16.6 per cent of the total electorate. So, the new voters add up to the total number of shares the Congress won in 2009. But can these new oness make or break the fortunes of any party? For them to swing votes, these new voters have to have radically different preferences. India Infoline believes support for political parties run deep within clans, families and caste groups. The theory that the first-time voter votes differently from his or her family is a theory that has not been tested.