Guest column: Will an NDA loss in Bihar be better for market, reforms?

By Pankaj Sharma, Head of Equities, Equirus Securities

Will the outcome of the Bihar election be a watershed moment for the Modi government and markets? Well, yes and no. Certainly, there would be an impact on the market if the NDA fails to win in Bihar. It could lead to a 2-2.5 per cent kind of correction in stocks immediately, if the results are negative for the NDA. However, I don’t think there would be any significant long-term impact on market or the pace of reforms in the country.

The so-called Modi euphoria might take a hit, but then most investors, especially FIIs, have already re-calibrated their expectations from the government and, hence, the impact of Bihar outcome would not last for more than a day or two.

Pre-poll surveys released so far on Bihar are as depicting a confusing picture. Not only are they inconsistent on who will emerge winner, but the difference between the two leading combinations is also so small in all surveys that they are “not very reliable” at best and “completely useless” at worst.

Nevertheless, we have one very clear observation to make, which is that the surveys that indicate a possible victory for the JDU-RJD-Cong alliance look way too optimistic about the performance of the Congress. The party has virtually zero presence on the ground and at the time of seat distribution, the number they got was a pleasant surprise even for it. Also, seats allocated to the Congress were the hopeless cases for RJD-JDU in most situations. We still think the BJP/NDA is marginally ahead, but the lead over RJD-BJP-Congress is so small that it would be very difficult to call the final outcome. In our view, it looks 60:40 in NDA’s favour as of now.

But the more important issue is how important it is for the BJP to win this election? The first point is that this election is certainly not as important as it is made out to be by the media for the future of economic reforms and as an indicator of Modi’s popularity. No matter what the results are, the number of seats it can potentially change in the Rajya Sabha is not more than two.

Both combinations have internal contradictions, but the BJP certainly has a fair share of them. Assuming NDA wins, a) Ram Vilas Paswan and Jeetan Ram Manjhi do not see eye to eye, b) the way the BJP compromised on seat sharing only confirmed its vulnerability, c) Modi and Shah can’t run the state on a day-to-day basis and none of the chief ministerial candidates from the BJP look strong enough to be able to manage the situation, d) the average MLA profile on a consolidated basis would not be at all different no matter who wins and, hence, good governance and clean candidates will at best remain a slogan.

So, it will be a winner’s curse and that can only damage BJP’s prospects in Uttar Pradesh and hurt its image at the national level much more.

We think that the best possible strategic outcome for BJP is if the RJD-BJP-Congress combine wins 115-120 seats and forms a government with the help of some 8-10 'others'. Neither will such a government be able to perform nor is it likely to last full term. In that situation, BJP will be able to take a moral high ground and certainly emerge much stronger in the early 2017 Uttar Pradesh elections, mid-term elections for Bihar assembly and the 2019 Lok Sabha elections.

People who say this election is a test of Modi’s popularity were saying the same thing even before Delhi elections. These things do not matter that much. On the contrary, if the BJP loses, it could actually make the government realise that half-hearted reforms do not help you win elections and make it more determined to perform and deliver without worrying too much about near-term political compulsions.