MOSL: INDIA POLITICS-BJP retains Gujarat-adds Himachal Pradesh to its kitty-Busy political calendar in 2018

​INDIA POLITICS: BJP retains Gujarat; adds Himachal Pradesh to its kitty; Busy political calendar in 2018; all eyes on earnings recovery

• In the first major state elections post GST implementation, the BJP, the ruling party at the center, has won both Gujarat and Himachal Pradesh (HP) state elections with a comfortable majority. Its vote share in Gujarat has gone up from 48.3% in 2012 to 49.1% in 2017. In Himachal Pradesh, the BJP has won close to 2/3rd majority, while in Gujarat, it has won ~55% seats. This is the BJP's sixth consecutive victory in Gujarat state elections and its first since Mr Narendra Modi became Prime Minister in May 2014, belying any impact of anti-incumbency after 22 years of its uninterrupted reign.
  
• Winning UP and Gujarat right after big structural reforms like demonetization and GST, which have created short-term disruption, reaffirms Mr Modi's popularity and augurs well from the reforms perspective, in our view. This is positive from a policy viewpoint as one steps into 2018, which has a very busy political calendar, with important state elections - Karnataka, Rajasthan, Madhya Pradesh and Chattisgarh.
  
• With the overhang of state election results behind, we expect the market to revert to fundamentals. 2HFY18 should see sharp earnings recovery, led by low base of demonetization and signs of pick-up in rural consumption even as the macros have come off a bit with the rise in crude oil prices, CPI inflation and 10-year bond yields.
  
• Our top ideas are ICICI Bank (ICICIBC), State Bank of India (SBIN), Shriram Transport Finance (SHTF), Repco Home Finance (REPCO), Indraprastha Gas (IGL), Emami (HMN), Titan Company (TTAN), Mindtree (MTCL), Larsen & Toubro (LT), Bharti Airtel (BHARTI), and Mahindra & Mahindra (MM).