May 22 (Reuters) – 0000 GMT: BJP CHIEF IN LIMELIGHT AS PARTY CELEBRATES Indian Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP)-led alliance celebrated what could be a big win in the general election on Tuesday night – and party chief Amit Shah was in the limelight, newspapers reported. He also occupied centre-stage at a get-together of the council of ministers at the BJP headquarters. Prime Minister Narendra Modi (right) shakes hands with Amit Shah at the party headquarters in New Delhi on Tuesday. REUTERS/Anushree Fadnavis Shah’s central role at both meetings strengthened speculation that the leader’s stature could increase if the BJP returns to power with a big majority as many exit polls have predicted, the Telegraph newspaper said. “Many in the BJP feel that Shah, considered the most influential after Modi, could get a powerful ministry in the new government,” it said. Votes will be counted on Thursday and results are likely to be announced the same day. Last week, Shah and Modi addressed a news conference together, where the prime minister refused to answer questions and deferred to the party chief. 0700 GMT: NEW GOVERNMENT HAS TO ADDRESS BANKS, JOBS, INFRASTRUCTURE Modi is seen most likely to win the election, promising policy continuity, but economists say the task before the new government is immense as growth slows and financial markets clamour for decisive and meaningful reform. “India’s absorptive capacity for the country’s growing supply of labour remains weak and so does its ability to build the necessary infrastructure,” said Alicia Garcia Herrero, chief economist at Natixis, in a research note. “Both require Modi to deliver much bolder reforms in his second term that is certainly a strong leap from where it is today.” Modi greets party supporters at an election campaign rally in New Delhi. REUTERS/Adnan Abidi The Mint newspaper said much needed to be done to convert the enthusiasm in financial markets to the real economy, including addressing faltering consumption. “The crisis with India’s non-banking financial companies is still unfolding and could put the financial system through more pain,” it added. “Jobs remain worryingly scarce.” The new government’s priority is likely to be on reforms on land, labour, privatisation and export promotion, Goldman Sachs said in a report. James Crabtree, Associate Professor of Practice at the Lee Kuan Yew School of Public Policy in Singapore, said his wish-list of reform included the banking sector and public undertakings. “I think Air India is a big one to watch here,” he said in the Reuters Trading India chatroom. However, the Control Risks consultancy said: “Do not expect him (Modi) to carry out a wholesale privatisation of state-owned banks or loosen political control over lending decisions (which led to the debt crisis to begin with). “At the same time, increased pressure over rural distress and unemployment will stoke Modi’s economic populist instincts, which will likely see an increased focus on rural spending and handouts aimed at supporting small and medium-sized enterprises.” As election dust settles, jobs, trade, security high on government’s to-do list 0715 GMT: BOND MARKET MAY RALLY ANOTHER 10 BPS IF RESULTS REFLECT EXIT POLLS Bekxy Kuriakose, head of fixed income at Principal Asset Management, said the benchmark 10-year bond could rally a further 10 basis points if the results to announced on Thursday gave Modi a win. In the medium term, he said the government’s full year budget, to be announced in June, and the Reserve Bank’s decision on interest rates will be key. “The debt market may not take it too kindly if there is further upward revision in the fiscal deficit target announced in the February interim budget,” Kuriakose said in the Reuters Trading India chatroom. “At this stage I would assign a 50% probability to a further rate cut in June by 25 bps, or even 10 bps to 15 bps, as the new governor has been talking about smaller quantum of rate cuts too. “However, it is also likely that the RBI may wait for the full budget.” Chart showing volatility (VIX) on the Nifty 50 over the last five days. There was a steep fall on Monday after the exit polls came out on Sunday night, but on Tuesday, the VIX was back up. 1045 GMT: NIFTY, BSE INDEX HIT LIFE HIGHS ON LIKELY MODI WIN. THEN FALL BACK Both of India’s major stock indices climbed to historic highs on Tuesday as euphoria continued over the prospect of Modi returning to power for a second term, but later fell back to finish about 1% down. The partially convertible rupee fell 0.26% to 69.757 per dollar after Monday’s 1% rise posted on the exit polls. Investors expect the rupee to hold in a 69-72 per dollar range in the medium term with global oil prices having the potential to push it lower. 0230 GMT: ING ASIA SAYS ELECTION RESULTS STILL UNPREDICTABLE ING Asia said in a research note that despite exit polls showing the BJP coalition returning to power, the results remained unpredictable. “Our base case remains seeing the Modi administration clinging to power for the second term, but given the anti-incumbent sentiment we saw sweeping through last year’s state-level elections in Chattisgarh, Madhya Pradesh, and Rajasthan, there remains the potential for an election surprise,” it said. “We believe the markets are priced in for (our) baseline scenario of a BJP-led coalition retaining power albeit with a thin margin. Such an outcome means that the election results should have little impact on markets, and in turn should be left to be driven by non-political factors, domestic and external.” A landslide win for the BJP alliance would come as a big positive for markets with the rupee testing its March high of 68.42 to the dollar and eventually settling in a 66-68 range, it said. Any government led by an opposition coalition would be negative for markets, it said.