13 May 2014

Asia Pacific Emerging

Markets Research
India: most exit polls project a majority for the BJP
coalition, but have a patchy track record

Exit-polls put BJP coalition in a majority

Reflecting the increased momentum that has characterized the BJ Ps campaign in recent weeks,
the first round of exit polls put the BJ P-led coalition (the National Democratic Alliance or NDA) very
close or, in most cases, past the half-way mark.
Recall, to form the government, any coalition needs to secure 272 seats in the lower house (Lok
Sabha) of Parliament. As it turns out, the average for the NDA across all the major exit polls was
275 seats in the Lok Sabha, just past the half-way mark, and almost identical to the last set of
opinion polls before elections commenced. Specifically, the mid-point forecast for the NDA across
various exit polls was (i) 257 in the Times Now-ORG poll; (ii) 272 in the India Today/CICERO Poll;
(iii) 276 in the CNN-IBN-CSDS-Lokniti poll; (iv) 281 in the ABP-NewsNelson ; (v) 289 in the India
TV- C voter survey. In contrast, the ruling UPA was pegged to get, on average, 112 seats -- a
sharp fall-off from its current tally of 226 seats.
If these polls hold, government formation will be straightforward
If these exit polls are proved correct (and thats not a given; see the caveats below) government
formation would be very straightforward. Markets have been concerned for a while that if the NDA
fell 40-50 seats short (around the 220-230 range) it would need to rely on at least two large
regional parties with potentially different ideologies and that would constrain economic
governance. However, if the exit poll numbers go through, the NDA would secure a majority by
itself, would not be reliant on any new ally post the elections, and Mr. Modi would be elected as the
country 14th Prime Minister. In fact, history suggests that on such occasions, a number of parties
would offer unconditional support, and buoy the governing coalitions tally.
even as regional parties are forecast to flex their muscle
To be sure, a number of regional parties exercised their muscle, according to the exit polls. The
Trinamol Congress (TMC) is pegged to get 25-31 seats in West Bengal. Similarly, the AIADMK is
forecast to get 22-28 seats in Tamil Nadu, and the Biju J anata Dal is forecast to get 12-16 seats.
For long it was believed that these parties would hold the keys to power, and that the NDA would
be reliant on their support for government formation. But, if todays exit polls are proved right, that
would not be the case.
Pan-India support for the NDA in the exit polls
What was also clear in the exit polls is the sheer breadth of the support for the NDA. It is making
big gains in the key battleground states of Uttar Pradesh, Bihar and Maharashtra, and running up
the tally very strongly in States it has recently dominated of late (Madhya Pradesh, Gujarat,
Chhattisgarh, Rajasthan), and also begun to increase vote shares meaningfully in States such as
West Bengal, Tamil Nadu, Seemandhara where it has not been traditionally strong at all. In short, if
the exit polls are right, this would be a pan-India performance.
But exit polls have a patchy record
That said, some caution is in order. Like opinion polls, exit polls have also had significant misses in
2004 and 2009. In the last election, for example, exit polls overestimated NDA seats by 15% on
average and underestimated the UPA by a whopping 32 %. If similar forecast errors are made this
time around, the NDA would get about 235 seats. They would, however, still be favoured to form
the government, but would need the support of at least 1-2 large regional allies which could
constrain governance and could create some nervousness for markets.
Market rally like to continue; even as RBI intervention could limit INR gains
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For now, however, the market revelry is expected to continue on the back of the exit polls. Equity
markets have gapped up 5.5% over the last two trading session, and are up 15% over the last
three months, and we expect a further rally tomorrow on the back of these polls. Rupee
appreciation pressures, however, are likely to be more contained given sustained intervention by
the RBI.
Sajjid Z Chi noy
(91-22) 6157-3386
sajjid.z.chinoy@jpmorgan.com
J .P. Morgan India Private Limited

Toshi Jain
(91-22) 6157-3387
toshi.jain@jpmorgan.com
J .P. Morgan India Private Limited

www.jpmorganmarkets.com
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