>INDIA ELECTIONS (STANDARD CHARTERED)

India – The countdown begins

■ Elections in India enter the final phase
■ Results on 16 May are expected to show a fragmented verdict
■ Markets may remain jittery until the formation of new government in early June
■ However, no sustained economic fallout expected

With the month-long election process nearing an end, markets are gearing up for a new government. Approximately 84% of constituencies have already voted in the first four phases, and the final phase ends on 13 May. Results are expected on 16 May. With none of the parties expected to win a simple majority (50%, or 272, of the total seats), a hung parliament is widely expected. Thus, it is key to watch the strength and composition of the new coalition government coming into power. Markets may remain on a nervous footing during the interim period from 16 May to early June, when the new government will be formed. Though a knee jerk reaction cannot be ruled out, historical clues indicate that markets are driven more by economic fundamentals rather than political events over the medium term. We maintain our forecasts of 5.0% GDP growth for FY10 and USD-INR at 47 by March 2010.

The election process in India, involving 714mn voters (about 60% of the total population) and 543 parliamentary constituencies, will decide the fate of the parties and their candidates by mid-May. Out of India’s 35 states and Union Territories, 10 decide about 75% of the total seats (see Appendix 2). However, given India’s seven national parties,* 48 state parties, and 1,000 registered but unrecognised parties – along with several independent candidates and a voter turnout of 50-55% – a fragmented outcome is widely expected (see Charts 1 and 2).

The election is likely to be closely contested by the Indian National Congress (INC, or Congress), which leads the incumbent UPA (United Progressive Alliance) government, and the Bharatiya Janta Party (BJP), which leads the National Democratic Alliance (NDA). In addition to the number of seats they win individually, their ability to forge alliances with other parties will be important in determining who finally leads the government.

To see full report: INDIA ELECTIONS