We now know that Indian PM Narendra Modi is set to retain power following the world’s largest general election, but his BJP party lost its outright parliamentary majority for the first time in 10 years.
Commenting on the implications of the election result, Abhinav Mehra, Portfolio Manager at Chikara Investments and co-manager of the Chikara Indian Subcontinent Fund, said:
“The biggest takeaway is that the perceived risk of a disruptive result of a hung parliament or the spectre of another election is now over. While the BJP was unable to reach a majority alone, they still managed a comfortable majority with their core allies which means that we should see a continuity of government and PM Modi.
“This may have been a political shock, but it bodes well for Indian equities, especially the domestically focussed stocks we invest in. Domestic consumption stocks have been the best-performing pocket of the market since the results.
“We believe the new government is likely to counter the narrative that a rural slowdown in UP and Maharashtra hurt their prospects in the election by focussing more intently on ensuring domestic growth and consumption keeps growing. Oil prices back below $80 creates the room for this near-term stimulus boosting consumption and credit growth. This may come at the cost of market areas reliant on aggressive infrastructure roll outs, where we’re likely to see expectations tempered.
“Longer term, we may see an increased volatility in the next 5 years than in the previous term. We believe economic reforms – the most challenging of which, in our view, were implemented in their first term (2014-19) – will be prioritised, with that the more disruptive socially divisive reforms (i.e. Uniform Civil Code, One Nation One Election) put on the backburner.
“As long as the strong growth rate from the positive capital cycle continues undisrupted, the long-term outlook of Indian equities remains robust – especially compared to so many economies that are highly levered and ageing. Against this backdrop, many would envy India’s fundamentals of >8% GDP growth, a clean banking system driving a cyclical uptick in credit and property, stable inflation and a macro environment with pockets of reasonable valuation across the market.”
Also, according to Gaurav Narain, Manager of the London-listed India Capital Growth Fund:
“The BJP led National Democratic Alliance (NDA) coalition has won the 2024 elections with a full majority (296 out of 543 seats) for an unprecedented third consecutive term. The numbers are however well below expectations and even lower than the verdict in 2019 (353 out of 543 seats). However, the disappointment is that BJP, the lead coalition partner has been unable to maintain its single party majority, having won 241 seats (vs half way mark of 272+ seats), compared to 303 seats won in the 2019 elections. This reduces the dominance of the BJP and essentially highlights the formation of a weaker alliance govt. in the offing.”
“While we expect policy continuity, with the Government continuing its investment led economic agenda, it may tweak priorities to support rural consumption and employment.”
“A challenge the new Government would however face is that it would need support from its coalition partners in decision making. This would constrain it in making bold reforms – particularly in areas of agriculture laws and labor reforms. It may also steer away from contentious issues like implementing a uniform civil code etc.”
“From a market perspective, we expect a stronger focus towards demand revival in rural India, benefitting consumption stocks. The investment led stocks, particularly the Public Sector Unit (PSU) could see some pull back.”
“A positive outcome of the election has been that it strengthens India’s democratic credentials. Ahead of the elections there were a) allegations that the Modi Government was influencing the outcome of the elections and b) an even stronger 3rd mandate for the NDA alliance would give it too much power with speculation they would make constitutional amendments, questioning the secular nature of democracy. All this has been laid to rest.”
