Exit polls for the recent state elections have yielded mixed projections, creating ambiguity around potential outcomes and ensuing policy impacts across the states that went to polls as well as nationally.
Analysis for a Layman:
Exit polls are surveys of voters after they leave polling stations, aiming to project election victories. Surveys for 5 major Indian states voting recently – MP, Rajasthan, Chhattisgarh, Telangana and Mizoram – show no clear winning party emerging in most regions. In MP, some polls predict BJP retaining power but others give Congress an edge. Telangana may go to Congress while Chhattisgarh is expected to remain with the current Congress government. For Rajasthan and Mizoram, predictions vary widely – some seeing Congress victories while others BJP wins. Therefore, currently no uniform projection exists across or within states.
The mixed exit poll predictions intensify political uncertainty and raise the likelihood of close contests, potential hung assemblies as well as surprising upsets. Telangana and Rajasthan seem primed for down-to-the-wire fights. This will keep markets cautious in the run-up to results. Volatility may be witnessed in stocks linked to state budgets and infrastructure spending as eventual winners decide new policies.
Savvy investors can utilize this uncertainty window by accumulating quality stocks that appear temporarily undervalued due to subdued sentiment but have strong economic fundamentals and growth runways not tied to state election outcomes per se. Some sectors like Banking, FMCG, Pharma and IT have secular structural drivers mitigating state political headwinds. Market reactions may also be muted since exit polls have proved inaccurate in recent years.
Impact on Retail Investors:
For retail investors, mixed exit polls increase near-term ambiguity on portfolio strategies. Tactically waiting out volatility till final results, avoiding premature bets based on random projections and resisting impulsive reactions to speculated outcomes would be advisable. Investor risk appetite is already low in a year of macroeconomic turmoil globally and locally. Hence allowing state election uncertainty to further dent market sentiment may not be productive.
However, long-term focused retail investors invested in quality names for structural growth need not worry about such short-term ambiguities. India’s consumption story and rising discretionary demand remains intact regardless of specific state mandates. astute investors can utilize market dips to increase exposure to stable large-caps across sectors and thematics benefiting from India’s economy-formalization megatrends spanning next decade.
Impact on Industries:
Infrastructure, construction, real estate and public procurement linked stocks may witness volatility as eventual winning party’s spending policies get clearer post-results. States are large ecosystem drivers. Consumption-oriented sectors like Auto, FMCG, agriculture and MSMEs could correctedly factor policy continuity or change into projections. Logistics and e-commerce industry also tracks regional tax incentives closely.
However, India’s growth trajectory and quest for a $5 trillion economy provides secular support, minimizing long term state politics impact across most well run private sector industries beyond near term noise. Stability largely prevails post knee-jerk reactions. Only sectors directly dependent on state investment such as contractors, cement or utilities closely track election spending pattern changes. But latest budget at national level focused strongly on capex, mitigating regional shifts.
Long Term Benefits & Negatives:
In the long run, mixed exit polls and close verdicts may aid formation of coalition-based regional governments focused on development over populism given reformist national regime and post-pandemic economy revival compulsions. Market-friendly policies could emerge. Consistent long term infrastructure build-out plans better aid corporate investment decisions than drastic swings each election.
However messy electoral mandates can also delay big picture policy making if unstable coalitions emerge or hung assemblies necessitate fresh elections. This causes reform paralysis jeopardizing state contributions to nation’s GDP – spanning nearly 40%. Short term uncertainty also threatens to slow private participation in mega state-led infrastructure projects in Jharkhand, Odisha, Andhra Pradesh et al. However, overall negativity depends on final seat share splits; markets seem cushioned currently to digest reasonable political shifts.
Short Term Benefits & Negatives:
If status quo largely prevails, policy continuity benefits local and national corporate ecosystems wedded to current state incentives, tax structures and institutional frameworks facilitating easy compliance, operations and expansion. However even seemingly “ideal” outcomes pose some risks like stoked regionalism or linguistic identity politics threatening social fabric over long term – witnessed in Maharashtra and Karnataka earlier despite strong mandates.
Alternatively, a year of dramatic political changes risks hampering business predictability in the short term but forces eventual course correction towards progressive governance given local example set by PM Modi’s national rule prioritizing growth and market reforms. Regional leaders have exhibited bipartisan cooperation previously on national issues like GST council despite state election tussles. Hence short term uncertainty clouds currently belie inherent checks-balances within federal polity to maintain constructive status quo.
Companies to Gain:
Companies to potentially gain include:
Infrastructure & construction majors like L&T, Ultratech Cement, NBCC dependent on state capex allocation who stand to benefit from emergence of stable regionally focused governments center or state, unencumbered by theatrical politics and focused on economic growth.
Private banks like ICICI, HDFC Bank with substantial coverage in election bound states to benefit from policy continuity, financial inclusion initiatives taken forward by successive governments recognizing growth drivers.
Defensive bets like ITC, HUL, Asian Paints, Maruti with deep penetration and household consumer connect in regions offer stability to investors amid political changes given secular volume drivers mitigating policy impacts.
Utilities like NTPC, Adani Power, Tata Power integrating state electricity boards into national grid could accelerate rural electrification and reforms with supportive regional leaders.
Companies to Lose:
Sectors likely negatively hit include:
PSU banks with higher state government exposure face treasury risks if unstable regimes delay payments or coherent policy making. Eg- BoB, Canara Bank.
Infrastructure cos or power producers lacking existing regional tie-ups or cleared projects may lose out if regime changes lead to reevaluation of tenders and bids extending sales cycles. Eg – KEI Industries, Skipper Ltd.
Automakers witness demand fluctuations for entry level models linked to rural income stability, farm loan waivers, crop MSP hikes depending on which manifestos prevail. Eg Maruti, M&M.
Consumer staples cos in discretionary portfolio also impacted marginally if additional state levies kicked in or statutory changes increase regulatory load temporarily hampering sales visibility.
Overall downside risks appear contained across majority well managed private sector companies with diversified national presence, as past electoral cycles demonstrate. Short term volatility may ensue but economic logic broadly prevails.
Markets may build in wider electoral outcome scenarios given indecisive exit poll projections. Investors able to look past political noise and base portfolio decisions on India’s strong consumption story stand to benefit over coming years regardless of state election verdicts.
Mixed exit poll predictions increase near term ambiguity for investors and business community over eventual regional election verdicts. But India’s strong economic fundamentals provide cushion against temporary setback. Stability likely to return soon as focus shifts back to pressing development and growth.
Article Author(s): ET Bureau
Article Title: Exit Polls Throw up a Mixed Bag
Publication Date: December 1, 2023
Article Publisher: The Economic Times
Article Link: https://economictimes.indiatimes.com/news/politics-and-nation/exit-polls-throw-up-a-mixed-bag/articleshow/123.cms