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Lalu Prasad Yadav, Rashtriya Janata Dal (RJD) chief and former chief minister (CM) of Bihar, has been convicted in the Rs 960-crore fodder scam case after the Central Bureau of Investigation (CBI) found him guilty of misusing Rs 37 crore during his reign as the CM.
The development comes at a time when the country heading into Assembly elections in a couple of months and the General Elections that are scheduled for 2014.
While the market participants will fine-tune their investment strategy in-line with how key economic policies take shape the global and domestic level, most are also keeping a tab on how the political equations shape up ahead of the elections.
In two out of past three occasions, the Bombay Stock Exchange (BSE) S&P BSE Sensex has recorded a gain of over 50 per cent during twelve-month period before the Lok Sabha elections. Except the last General Elections held in 2009, the benchmark index had surged 61 per cent in 1999 and a whopping 93 per cent in 2004 during one-year prior to elections, data suggests.
However, in the year the market did not rally before the elections, it rallied after the elections! In 2009, while Sensex declined 33 per cent before elections, it rallied 61 per cent in next one-year after the new Government took charge.
So, is the conviction of Lalu Yadav a game changer politically and how are the markets reading into this development? Does this bring an element of uncertainty on the formation of a stable government at the Centre post the general elections?
Point out Pramod Joshi, an independent political analyst: “The verdict may lend an element of uncertainty going ahead. There are 40 Lok Sabha seats from Bihar. There have been several instances earlier as well when the leader of a party was barred from contesting an election – for example Bal Thackeray, J Jayalalitha etc. So, even after Lalu Yadav’s conviction, his party would still be in operation since it has not been disbanded.”
“One needs to see how the political alliances work out going ahead. We recently had elections in Maharajganj in Bihar that saw RJD candidate defeat Nitish Kumar’s Janata Dal (United), or the JD (U). Thus, Lalu had started emerging as a strong force. One also needs to understand that the Nitish Kumar’s popularity is going down and his alliance with the BJP is no longer in existence. So, whether the Congress will like to align with Lalu Yadav or Nitish Kumar; or will they slug it out in Bihar alone is yet to be decided. All this will get decided as we get closer to the elections or post the outcome. Thus, there is be an element of uncertainty.”
Points out Deven Choksey, managing director, K R Choksey: “I don’t think the development has come as a surprise to the markets. Whether Lalu Yadav will be a part of the government after this statement is what the markets now need to know. In case he / his party does form a part of the government, it will give a very wrong impression to the markets that the government wants to continue partnering with people who are tainted.”
“The markets want clarity on a few things like whether the Reserve Bank of India (RBI) policy is focusing back on growth and clarity on what the Finance Ministry is claiming about getting started with infrastructure. Besides, more clarity is needed on what happens to Manmohan Singh when he comes back from his US trip – whether he wants to continue as the Prime Minister or not. These are some of the issues that the markets need clarity on for stability to return going forward,” he adds.
Corroborates G Chokkalingam, executive director and chief investment officer, Centrum Wealth Management: “As far as the current political scenario is concerned, there is nothing much to worry about. This is because the development doesn’t change any political equation as things stand. Even the political parties which are at the receiving end will need support of the ruling party.”
