The verdict from the four state elections vindicates the popular sense of an anti-Congress consensus, with the grand old party receiving a broad-based drubbing. And there is now the likelihood of the BJP forming governments in all the four core Hindi-speaking States.

While this seems to be a big moral booster for the BJP, the verdict seems to be a stronger statement against the Congress on issues such as corruption, inflation and the declining pace of quality employment generation. For the Congress, it would pose significant challenges to its leadership.

The BJP has clearly gained from urban areas, youth, a higher voter turnout and the Modi wave. And the impact seems to be more dramatic in Rajasthan and Madhya Pradesh . In Delhi and Chhattisgarh , the party has just scraped into a position of strength, which could support its claim to form the next government.

In Chhattisgarh , the BJP’s tally has been lower than the consensus expectation of 53 and 50 in the past elections. Its vote share is only marginally higher than the Congress’. Similarly, in Delhi, its tally of 31/70 is also less than what it needs to form the government, with the Aam Aadmi Party (AAP) putting up a strong show by winning 28 seats even as the Congress was decimated to just eight seats, against 43 last time.

Palpable trends While the results seem to have improved the chances for the BJP in the Hindi heartland, its marginal win in Delhi and Chhattisgarh seem to indicate some interesting challenges that should prompt the party to restrategise and possibly look for alliance partners ahead of the 2014 polls . And it will be pertinent for the party to capitalise on the anti-Congress sentiment at the national level. Its gambit could be to take advantage of the current negative sentiment against the Congress, thereby reversing its vote share, which has declined since 1998.

The other trend possibly coming out of the election results is that sops are failing to woo in votes, as was the case for the Congress in the 2009 polls. The case in point is the large scale populism thrown into election manifestos by the ruling Congress in Rajasthan and the BJP rule in Chhattisgarh. While the BJP’s manifesto in Rajasthan was equally populist, the Ashok Gehlot government’s loss is a reinforcement of the normal anti-incumbency character of the State.

More chances for Modi For the markets, the state election results augur good news. By increasing the probability of a Modi-led Government at the Centre in 2014, this fuels expectations of strong leadership and policy changes that can redress the ailments of the Indian economy. It also presupposes that a Modi-led regime will restore the pro-growth and pro-investments phase the National Democratic Alliance delivered in 1999-2004. Again, it presupposes a shift away from the overly socialist approach of the Congress-led United Progressive Alliance.

So, in the near term, the momentum in the equity and currency markets may be positive. Nifty could see a 1-1.5 per cent surge in the opening session. One can expect profit booking to cap the rise, as most of this outcome has been priced in.

However, going forward, what will increasingly concern markets is the possibility of US Fed tapering its bond buying programme earlier than expected. Recent data from the US economy indicate solidity in economic recovery with GDP growth rising to 3.6 per cent in Q3 and decline in unemployment rate to 7 per cent on the back of broad-based improvement in the employment scenario. Importantly, the decline in unemployment rate along with the rise in labour participation rate shows structural improvement.

But the market will also have to weigh the prospects of the BJP delivering big reforms. It will be important to note how the party is planning to confront issues such as inflation, declining saving rates, inexorable fiscal deficit, declining productivity, elevated current account deficit and falling investments. We will need to examine the BJP’s 2014 election manifesto to get the answers. Will the party extrapolate the populism reflected in State manifestos or will it have a more constructive agenda? That will be the million-dollar question.

(The author is Head of Institutional Research at Emkay Global.)

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