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BJP’s Alliance in Bihar & Tamilnadu Boost SENSEX

March 28, 2014

As we get closer to elections, political parties are stitching together alliances to help their electoral prospects. The BJP seems to be ahead in the race reinforcing their image of being the frontrunner in the polls. It has also belied some apprehensions that Narendra Modi being at the helm would prevent allies from joining the party. Key alliances formed by the BJP include (a) Bihar (LJP, RLSP), (b) Tamil Nadu (5 Parties), and (c) Haryana (HJC). It is also likely to announce an alliance in Andhra Pradesh with TDP, as per media reports.

Why Tamilnadu Alliance is Shot in the Arm of BJP ?
BJP announced a major alliance in the Southern state of Tamil Nadu where the BJP has been traditionally a fringe player. BJP has managed to form an alliance with 5 other parties in the state namely, DMDK, PMK, MDMK, IJK, and KMDK. As per the last general elections, this alliance of 6 parties had a vote share of ~23% in Tamil Nadu vs. AIADMK at 23%, DMK at 25% and Congress at 15%.

Bihar – a 3-cornered contest
Bihar will now witness a 3-cornered contest. Congress has tied up with their traditional ally, Laloo Yadav’s RJD. But their 3rd partner, LJP headed by Ram Vilas Paswan has crossed over to the BJP. The entry of LJP in NDA fold is particularly sweet for BJP since LJP was part of the NDA in 2002.

A strong government will lead to a bigger tilt toward domestic inclusive growth companies. Several indicators are telling us that the market is pricing in a decisive election result. Among these is the market’s increasing liking for high beta stocks. The market is also changing beta values as it does ever so often. The stocks that lead the beta surge, especially where such a beta surge is led by rising correlations, are the ones the market identifies those whose fundamentals are most levered to the elections. Surprisingly, from the Sensex stocks, private banks and not SOE banks top this list. Industrials are exhibiting rising beta but largely led by idiosyncrasy. Other stocks where the beta and correlations are both up significantly include Bajaj Auto, ITC and Bharti. Not surprisingly, technology stocks have experienced a sharp fall in beta with Infosys and Wipro reporting negative trailing beta.

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