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INDIA LIVE-Winning the election may be the easy part

May 21 (Reuters) - 0700 GMT: NEW GOVERNMENT HAS TO ADDRESS BANKS, JOBS, INFRASTRUCTURE

Most exit polls have predicted that Indian Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP)-led alliance will romp back to power for a second term, promising policy continuity, and cheering financial markets.

Final results will be announced on Thursday. Modi is seen most likely to win 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."

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, showing that traders might still be cautious. 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 in morning trade as euphoria continued over the prospect of Prime Minister Narendra Modi returning to power for a second term, but later fell back to finish about 1% down.

The broader NSE index and the benchmark BSE index had gained about 6% in the three sessions to Monday.

On Monday, the indexes posted their biggest single-day gain since September 2013.

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. India's Finance Minister Arun Jaitley attends a news conference in New Delhi. REUTERS/Saumya Khandelwal

0015 GMT: AFTER EXIT POLLS, FOCUS ON THE NEW GOVERNMENT TO BE FORMED

Finance Minister Arun Jaitley looks set to retain his post if Modi's win is confirmed by the official results on Thursday. But Jaitley is a diabetic and had to skip the interim budget in February when he was in hospital in the United States, getting cancer treatment. He had a kidney transplant in May last year.

If his health worsens, Railways and Coal Minister Piyush Goyal could take over.

BJP party chief Amit Shah has invited alliance partners for a dinner meeting on Tuesday to discuss the formation of the new government, two party sources said.

Local media said the council of ministers would also meet Modi and Shah.

(Raju Gopalakrishnan, Karishma Singh)