Thursday, December 5, 2013

Biggest joke – sensex rises because of exit polls!

The biggest joke in today’s papers – obviously propagated by APCO and its newly-discovered partner Huffington Post (!) – was that the sensex was up because the BJP was doing well in the exit polls. Nothing could be far from the truth. I will explain why in very simple, and logical terms (hence might be difficult for BJP supporters to digest!).

1)    Always expected to do well: The BJP was always expected to do well in MP and Chhatisgarh. If anything, there might be a shock for the BJP in Chhatisgarh, where the exit polls are indicating a wafer-thin win for the party. And if the polls are right, the Congress’s vote share % is expected to actually increase by 1% or so. At best, the BJP will retain Chhatisgarh with a smaller margin. In MP, the BJP will win because it has completely saffronized the state, just like it has Gujarat. Apart from these two states, the BJP was expected to win Rajasthan, considering that the state has never returned the same party to power in the last 20 years. The only state where the BJP could have expected to do really well was in Delhi, where the biggest protests against the UPA were held. But from the exit polls, it looks like the BJP has made a hash out of Delhi. At best, it may emerge as the largest party, but it wont be strong enough to form a government on its own. Is this the “pleasant surprise” the stock markets received, in response to which the sensex rose?!
2)    BJP’s best states: These states reflected the absolute stronghold of the BJP (the only other state being Gujarat). Take away these states and what does the BJP have left? It is a junior partner in Punjab, its chances in Bihar and UP are highly suspect, and it does not even have a presence in South India (with or without Yeddy). Just because it is expected to do well in these states gives no hopes (to BJP supporters) that it will do well nationally. In fact, if AAP does well in Delhi, it will again show that the regional parties, not the BJP, will do better. Is this what the stock market got excited by?!
3)    Hardly the semifinal: A mail from former colleague and current Edelweiss employee Abneesh Roy gives the following views from the market:
a.    The recent State Elections accounted for only 13% of total Lok Sabha seats (72 of the 543 seats). There is still a big battle ahead to be fought. In 2003 also in the States of MP, Rajasthan and Chattisgarh, BJP had a 3-0 victory but they lost the National Election.
b.    BJP has presence only in 330 seats out of a total of 543 seats, it lacks a nation-wide presence and hence its alliance making capability is very important. It has negligible presence in 30% of the Lok Sabha seats – these are the big states of West Bengal, AP, Tamil Nadu, Orissa and Kerala . BJP is also relative to Congress not so strong in the rural constituencies which account for ~63% of Lok Sabha Seats.
c.     The importance of UP - this  is a very big State, it accounts for 14.7% of total Lok Sabha seats. Congress is not dominant here but the two regional parties SP and BSP will pose significant challenges to a BJP victory. Caste here dominates far more than Modi’s governance placard.
d.    Finally how relevant are the polls ? Historically we have seen that Opinion polls and Exit polls tend to give similar results but the final result can be very different. This was the case in both 2004 and 2009 elections. Hence, as our political analyst says ‘’dont count your chickens before they hatch”. While Modi wave is very strong and BJP may emerge as the single largest party in the general elections (consensus number is 160 seats) , there is conviction as yet whether they will get enough majority to form a government.

Does this look like the kind of mail an excited brokerage would send to its clients?!

4)    Markets discount the future: It’s common knowledge that the markets discount the future. The biggest event of 2014 is the general elections. Is there any more certainty about a stable government then, based on these exit polls? Again, even assuming the BJP tops these assembly polls, does the market believe that that will affect the general elections? Only the absolutely gullible can believe that; definitely not the rationale stock punters!

5)    Hardly a rise: The stock market has still not retained the highs hit a few weeks back. Today, its already showing weakness, up as it is by just 40 odd points. The Japanese Nikkei in the meantime is set to test its all time high of 10000, and by the way, the Japanese King and Queen are not even meeting Modi! Also, the Karachi stock market has risen by twice as much as India today, so is that because Modi’s influence extends to Pakistan?!

The real truth is that BJP’s expansive PR machinery – on which hundreds of crores of rupees are reportedly spent – is the one that’s fuelling the PR stories on Modi. This is astute PR, but as with everything Modi, this also is a lot of rubbish! The stock markets are strong because of strong policy action by Chidambaram and the Cabinet’s project clearances, the containment of the fiscal deficit and capital account deficit, and the bottoming out of the Indian economy….

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