Natalia Orlova of Alfa Bank -

The key question is not who will win, but rather the number of rounds it will take to win. The last time Vladimir Putin participated in a presidential election, he won 71% of the vote, while this time his result will be lower. Victory in the first round (around 50% of votes) will confirm his high popularity and support his confidence in adopting a more market-friendly policy stance. If a second round is necessary, raising doubts about his popularity, he may lean more toward an economic dirigisme, including putting privatisation on hold, increasing the tax burden and becoming less generous in social spending.

Vladimir Putin is the most popular candidate: On the eve of the March 4 presidential election, Vladimir Putin is the leading candidate with 42%, well ahead of runner-ups Gennady Zyuganov (10%) and Mikhail Prokhorov (4%). Around 22% of the population remains undecided, suggesting that Putin's popularity may go even higher. This offers little doubt that Putin, the most popular politician in Russia, will win the upcoming elections.

Winning in the first or second round matters: Given that Putin's trust and approval ratings are at historical lows, the likelihood of a second round should not be excluded. In contrast to the general market view, we believe it matters whether the decision will require one or two rounds. We believe the market has overestimated the importance of the protests and tends to believe that a second round win would make Putin's victory more legitimate, also reducing protest activity. We, on the other hand, believe how the authorities would perceive a second round scenario is far more important for economic policy.

A first-round victory would make Putin comfortable, which is positive: Last time Putin participated in a presidential election, he won 71% of the vote and since then has not had an opportunity to gauge his popular support objectively. Polls are subjective and allow a margin of error, while the parliamentary elections, pointing toward declining support for United Russia, should not necessarily be seen as a proxy for Putin. We believe winning in the first round would reassure Putin, allowing him to accept the street protests and putting him in a strong position to lead the dialogue with the opposition.

A second round may result in a sterner dirigisme...: If on March 4 Putin does not break the 50% threshold, it will come as a negative surprise for him, questioning the strength of his power. In this case, we would expect him to become much less tolerant of the opposition. We also believe that he would try to reinforce his power by more intense management of the economy through state entities. A number of the articles he recently published contain such a vast array of proposals that they could easily form either a very market-oriented or a much more state-oriented approach, and the final decision will be taken based on the election outcome, in our view. We also note that even if Putin wins in the first round but by a very small margin, the risk is high that protests will intensify and Putin's course of action may be similar to that which would occur under a second round scenario.

...favouring Reserve Fund accumulation and putting privatization on hold: While it is not clear whether any election scenario will affect the composition of the Cabinet, it will likely affect economic policy priorities. We believe budget policy will be in particular focus. First, a second round would increase the importance of Reserve Fund accumulation, which is necessary for further reliance on state banks and companies. Secondly, a second round could confirm low political efficiency from the drastic increase in social spending in 2007-2010, and thus put any further generosity on hold. Finally, we believe that in a second-round scenario the state will favor a more active increase in the tax burden and may slow the privatization process, which has already seen a recent pause.