Resurgent markets look for Bihar boost

Trends in poll-bound Bihar could sway stock prices as state elections determine Rajya Sabha numbers

From global concerns such as the US Federal Reserve's interest rate hike and a slowdown in China subsiding, Dalal Street has turned its attention to the Bihar elections, whose outcome could set the tone for the Narendra Modi government's reform agenda.

The Bihar Assembly elections are scheduled to be held in five stages between October 12 and November 5, with results due on November 8. The Indian markets have turned buoyant ahead of the Bihar elections, with the benchmark indices rebounding eight per cent from their September lows.

Bihar is one of the most populous states with a young population. The election outcome could impact capital markets as well as the national economics and politics, according to experts.

Several surveys show it would be a tough battle between the Bharatiya Janata Party (BJP)-led four-party coalition and Nitish-Lalu-Congress alliance. The elections are seen as crucial to the BJP-led National Democratic Alliance (NDA), which won a massive victory in the 2014 general elections and subsequently did well in most state elections except Delhi, aided by the popularity of Prime Minister Modi. "If the BJP wins, it will be positive for the market. The party will get stronger in the Upper House, enabling it to push reforms," said Nirmal Jain, chairman, IIFL Holdings.

State elections can determine seat shares in the Rajya Sabha. Centre has seen delays in key legislation, including the land Bill and the goods and services tax Bill, due to lack of numbers in the Rajya Sabha. Bihar contributes to 16 Rajya Sabha seats. A BJP loss could be a big disappointment for the markets, pointed out Motilal Oswal, founder of Motilal Oswal Financial Services, reiterating a win could boost reforms.

According to Kotak Institutional Equities, the politics of Bihar will feed into the elections next year, in the neighbouring states of West Bengal, and the year after in Uttar Pradesh. "In the medium-term, it can slowly, though marginally, impact the composition of the Rajya Sabha," said a note by the brokerage. It added the chances of a 'hung' Assembly seemed low if the voters get polarised between only the first two alliances. "Whoever wins will possibly win a strong mandate," it said.

JM Financial observed in its note the northern states of Bihar and UP are critical to the strong performance of NDA in 2014 parliamentary elections. NDA won 31 out of 40 seats in Bihar and 71 out of 80 seats in UP. "The win was attributed to 'Modi wave'. Bihar is the first major state to go for elections and a win will confirm the prevalence of Modi wave," said the brokerage in its note. However, he cautioned while a BJP win could catapult some key and urgent reforms to restore shrinking investor confidence in India, the earnings momentum would remain the main driver for the outperformance of Indian shares. The benchmark BSE Sensex is largely unchanged (year-to-date), after running up nearly 30 per cent in calendar year 2014, mostly on hopes of swift economic reforms after the Modi-led NDA won a majority.