Election Results & Market Implications

India's general elections will be ending tomorrow with the last round of polling. It was spread over 5 stages, taking over 4 weeks, involving 6.5 mn staff. In 543 constituencies, 4,617 candidates, representing some 300 parties, have competed for the ballots of an electorate of 714 mn eligible voters. In 828804 polling stations, 1268430 robust and tamper pro0f electronic voting machines were deployed which will release the results this Saturday.

This is perhaps one of the most important events that will shape the Indian equity markets in short term (definitely) and long run (in adverse results cases). I believe that there are 3 possible scenarios of the results:

• The Best case scenario which has a very little probability is that either of the 2 main coalitions NDA and UPA get over 200 seats. This will lead equity markets to soar immediately. The winner could be called to form the government immediately and this will a good outcome for the long term growth too
  
• The worst scenario is that both leading coalitions have less than 160 seats. Bad for equities in the short and long term. This would not only raise the chances of a third-front government, but can also take a long time for a stable government formation (as was the case in 1996). This could spell doom's day for markets on Monday and for the near term too


• The base case scenario (most likely) is that In the base case, at least one of the coalitions will have between 160 and 200 seats. In this case what matters is the margin of victory and if one coalition is ahead of the other by over 25 seats then the likelihood of a stable government is more profound (and good for markets for short term). However if the gap is small, which is equally likely, the terms extracted by the minority parties could be severe and become critically important for the market. For example the role played by the Left parties or Ms Mayawati’s party. (This is bad for the the short term markets).

These are the three possible scenarios I believe. Once the polling ends tomorrow in which even I am voting ,the exit poll results will start coming out in the evening. However in the past exit polls have being misleading and so they should be viewed with ample scepticism.

As they say, the only thing predictable in such cases is the unpredictability and hence investors/traders should not leave any open positions ahead of this crucial Saturday and this is the reason why markets are tanking over last few days as the long positions are being covered by the wary traders.