State election results to overshadow data releases : DBS Research Report

The markets are likely to open on a nervous note after a key state election re­sults, out on Sunday, proved to be a setback for the centre-ruling party. The final tally in the Bihar elections saw the coalition Grand Alliance (incumbent JDU, RJD, Congress) take a clear lead with a win over 178 seats of the 243 assembly seats. The ruling NDA party (led by the BJP) trailed with 58 seats. These unfavourable poll results coupled by renewed US rate hike expectations (post strong NFP) will keep local markets on tenterhooks in this holiday-shortened week.

These state elections assume importance as the ruling government is trying to widen its control over states and the upper house of parliament, after gaining a majority in the lower house last year. Sunday's results will make this a challenge. Bihar accounts for 16 out of the 244 upper house seats. Of these, 5 seats (held by JDU) will be up for re-election next year, followed by 6 in 2018 and 5 in 2020. On the political end, these results reaffirm that the centre-ruling party will find it challenging to break into crucial states if regional parties band together. Atten­tion therefore is likely to swiftly revert to upcoming four state elections in 2016, followed by the key Uttar Pradesh polls in 2017.

Apart from the political calculus, worries are that these election results might derail the reform process and tilt the balance away from developmental reforms and encourage a populist agenda. It is premature to assume that this will be the case. However it is clear that getting key legislations, especially land, labour and GST, past the winter parliament session (late-Nov) will be tougher than before. It remains to be seen if an anticipated cabinet reshuffle and watering down of provisions cuts any ice with the opposition parties. Meanwhile, while this year's fiscal targets are likely to be met, next year's finances might come under strain as windfall gains from low commodity prices are exhausted and fresh spending commitments rise.

Poll results are likely to overshadow data releases due this week. Sep industrial production and Oct CPI inflation fall due on Thu (12 Nov), with trade numbers out anytime in the interim. The recent updrift in the core industries index sets the stage for a firm Sep industrial production (IP) print. While the headline is likely to slow to 5.0% YoY from 6.4% month before, pace will quicken on se­quential basis. At the same time, Oct CPI inflation is likely to rise 4.7% YoY slightly higher than Sep's 4.4%. On policy, after the bunched-up 50bps cut in Sep, we expect a pause to follow at Dec's review. The RBI is also likely to keep an eye on renewed expectations that the US Fed might move on rates later this year.

Source : Equity Bulls

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