How you Could Have Made Money From the Karnataka Election Coverage

Elections throw up a dizzying number of possible coalitions and outcomes. In the recently concluded Karnataka assembly elections, many newspapers, TV channels and political analysts learnt it to their dismay. Based on the initial leads, they declared BJP the winner, only to realise later that the political script was unfolding in a very different way.

Around 10:30 AM yesterday, there was a strong consensus on my twitter timeline that BJP had ‘bagged’ Karnataka. Convinced of the ‘verdict’, commentators moved on to ‘explain’, ‘analyze’ and ‘draw lessons’ from the verdict! It puzzled me to the extent that I put out the following tweet:

Wrong to call Karnataka right now. If BJP doesn’t cross halfway mark, a Congress/JDS alliance may not be ruled out.

Why one should have anticipated the possibility of Congress and JD(S) coming together? To see the logic, begin with a basic tautology: a politician covets political power. Politicians, while forming a coalition, wish to form government. This is partially correct; but, not the whole story. Otherwise, what prevents the whole legislative assembly from coming together and forming a ‘super alliance’?

Such an alliance is guaranteed to rule forever.

The reason why such ‘super alliances’ never get formed is not because they are unethical or ideologically incongruous. The real reason is that politicians worry about ‘intra-alliance’ power too. They dislike being a small player in a large coalition. That is why a ‘typical’ political coalition is medium-sized: big enough to cross the halfway mark, but not big enough to make each slice of the pie too small.

Following this general principle, it was obvious from the initial leads that Congress and JD(S) combine was the most natural post-poll alliance. A BJP-JD(S) combine would have been too big to be stable, given the numbers. In a way, the initial bounty of MLAs that BJP harvested also diminished the probability of BJP-JD(S) coming together! BJP had to cross the halfway mark on it’s own, possibly aided by independents and/or poaching.

Looking at the election this way totally changed the interpretation of the emerging scoreboard. Except may be for a brief period, BJP never crossed halfway mark on it’s own. And from 1.15 PM onward, they were firmly trailing behind the combined strength of the Congress and JD(S). And then around 2.00 PM came the bombshell announcement: Congress had offered unconditional support to JD(S) which wasted no time in accepting it.

And this was not merely an academic speculation. Since stock market was bullish on the BJP victory, there was a narrow window in which you could have capitalized on the misleading headlines: you could have shorted NSE benchmark index and made some quick bucks.

I am still regretting the missed opportunity.

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