As the elections progress, the market's reaction reveals a blend of nervousness and fatigue. With no strong narrative emerging, discussions around the potential outcomes and their impact on the market have intensified. Should investors be worried? Bernstein's latest report delves into the pressing concerns surrounding the elections.
A key discussion point is the perceived weak voter turnout. Often, comparisons are made between phases of the current election and those of 2019, which can lead to misleading conclusions. For instance, comparing voter turnout in the first phase of 2019 with that of the current elections is problematic since the constituencies involved differ significantly. Additionally, initial panic arose when ballot paper numbers for the first two phases were updated a week later, increasing the turnout by over 5%. The most accurate comparison is within the same constituency, which does show a decline from 2019 but not as pronounced as compared to 2014.
So far, the average voter turnout for the first three phases is just over 66%, closely mirroring the overall turnout in 2014. In contrast, the 2019 elections saw voter turnout decline from 69.6% in phase 1 to 61.7% in phase 7. Currently, the phases don't indicate a loss of momentum in turnout, suggesting no significant damage to the overall numbers if this trend continues.
Comparisons with 2019 arise because it was the last general election, but the circumstances differ greatly. In 2019, national security issues like the Pulwama incident and Balakot strike galvanized voters. In contrast, the current scenario is more akin to 2014, with a government completing a decade in power and voters deciding on change. Unlike 2019's "pro-incumbency" wave, there is no central voting theme this time.
Historical data shows no clear correlation between voter turnout percentages and election results. Bernstein's analysis suggests that a 2-3% decline in voter turnout, combined with anti-incumbency sentiment, would slightly reduce the BJP's tally below 2014 levels. However, a significant decline (>5%) without strong anti-incumbency would likely yield results similar to 2019. Only a substantial drop in turnout paired with significant anti-incumbency could create a market-defining event. The opposition's increased unity could also start to impact outcomes at this stage.
Fatigue, boredom, and extensive data analysis have caused election narratives to shift rapidly. Initially, the elections seemed a non-event, with a decisive victory for the incumbent NDA government expected. However, after phase 1, the possibility of a surprise outcome has gained traction. The market, which had priced in considerable optimism, now faces growing unease due to lower voter turnout and shifting narratives.
Bernstein highlights that the elections are far from being a non-event; they have sparked significant market interest and concern. As voter turnout and political dynamics evolve, investors should closely monitor the situation, staying prepared for potential surprises that could impact the market.
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