Anxiety over the outcome of the Bihar elections is gradually building up. The Sensex this week fell on all 5 trading sessions of the week. In the process it lost a huge 813 points.
But clearly, it is likely to be a make or break for the market and not without any reason.
If the BJP led NDA loses, the markets are likely to fall and fall badly. A 5-10 per cent cut in the benchmark indices cannot be ruled out. This is because the BJP is already outnumbered in the Rajya Sabha where it has just 45 members as compared to the Congress, which has 67 members. Today, the BJP cannot get a legislation like the Goods and Services Tax passed, simply because it is woefully short in the Rajya Sabha.
A victory in Bihar would not only increase the BJP's numbers, but, would also strengthen it to push crucial legislations like the GST and the Land bill. It is a big psychological boost that people are happy with the government's development agenda, which could drive the reform process. This is certainly good for the markets.
Of course having said that even if the BJP wins Bihar and does well in the West Bengal and UP elections in the next few years, it is still unlikely to get a majority in the Rajya Sabha before 2018 or 2019.
So, its position in the upper house would till be shaky. But, as far as the markets are concerned, it would be sentimentally driven. A loss means the BJP government may have to scale back its reform drive and resort to more populist measures, which would not go down well with the markets.
The outcome of the Bihar elections will be known only on Nov 8 - the day of counting. However, exit polls on Nov 5 would provide enough clues for the markets to react on Nov 6. The last time the exit polls got it hopelessly wrong with the Delhi elections when no one had predicted the AAP to sweep the elections. Exit polls will nonetheless be closely watched by the markets for cues.