 "Markets see life beyond Bihar election results")
Also Read: NDA's defeat in Bihar polls will pose no threat to Modi govt: Digvijay Singh
Four out of the six exit polls suggest a victory for the Grand Alliance. Interestingly, and in contrast, Today's Chanakya, which had correctly forecast the 2014 national elections, predicts a landslide win for the BJP-led alliance. The outcome, therefore, while leaning towards the Grand Alliance, is not clear cut, and the final results could sway in either direction.
Also Read: Grand Alliance gets 4-2 lead in Bihar election exit polls
Impact on markets
Despite this uncertainty, analysts suggest the markets have already discounted the possibility of NDA's loss in the Bihar elections. Since the start of polling in Bihar on October 12, the CNX Nifty has slipped nearly 2.1% till intra-day deals on 06 November. This, however, is also partly attributed the to the September quarter results besides the nervousness ahead of the election outcome.
Though analysts expect the markets to remain volatile ahead of the outcome on 8 November, they expect the impact to be short-lived.
Explains Vivek R Misra, Asia Equity Strategist at Societe Generale: "The result seems too close to call, but the impact should both significant and short-lived. A victory for BJP in upcoming state elections will boost the probability it can win seats in the upper house of parliament when they come up for election. We should also note that for it not to win the state legislative elections does not necessarily mean it cannot get its reform package through, although it will make it harder and it will take longer."
"We believe we are about to see an earnings recovery unfold among Indian corporates and that this recovery will trigger the second phase of the bull market as monetary policy easing impacts margins and capacity utilisation improves," he adds.
U R Bhat, managing director, Dalton Capital Advisors, also believes that the Bihar elections are too close to call and it should not matter, as regards framing national policies, whether Bihar is run by a non-NDA government or NDA government.
"Even though there will be volatility initially post the outcome, the markets should settle down over the next two sessions. There are other larger issues - both global and local - that will determine the market direction. I suggest buying at lower levels. The volatility can see the Nifty drop to 7,750 levels at most, while the upside seems to be capped at 8,250 levels. The markets are already factoring in the worst outcome for the NDA," he says.
While the Bihar election result is being seen as an indicator of the BJP's policies, a win / loss for the BJP alliance will a positive or negative signal for reforms. However, this is not necessarily true.
Also Read: Reforms to continue irrespective outcome: Bajaj
"Bihar accounts for 16 out of 244 seats in the upper house. Of these, five seats (currently held by the JDU) will be coming up for re-election in 2016, none in 2017 and six in 2018 (4 JDU and 2 BJP). Therefore, a marginal win or loss for the BJP is unlikely to change its bargaining power in the upper house in a meaningful way. In fact, even if the BJP wins Bihar, it will still have to continue to build consensus on legislative reforms," say Sonal Varma and Neha Saraf of Nomura in a report.
Also Read: Why predicting Bihar-election verdict is so difficult
"Therefore, purely from a numbers perspective, we believe the importance of the Bihar elections is overstated. Beyond the immediate reaction, we do not expect the direction or pace of economic reforms to change dramatically in the coming year. In our base case, we expect incremental economic reforms to continue, irrespective of the Bihar election result," they add.
