What A Weaker Mandate For BJP Could Mean For Markets

The counting of votes for the 2024 Lok Sabha elections is turning out to be contrary to the sample statistics based on exit polls.

As of now, the numbers suggest a weaker mandate for the Bharatiya Janata Party-led National Democratic Alliance. While the party is in the lead, it seems unlikely for it to cross the 272 seat mark on its own, according to UBS. This could mean the party would depend more on its alliance partners, meaning its bargaining powers would shift materially with the alliance, it said.

Here are three scenarios that could take place, according to the brokerage. Most scenarios can be taken negatively by the stock market when compared to street expectations a week ago.

In the first scenario, Prime Minister Narendra Modi would return but would have to carry along alliance partners. This would mean giving them ministry portfolios.

In this situation, the government may not function as smoothly as in the last 10 years, when the PM office had strong control over government machinery, according to UBS. This scenario is the most likely, given that the alliances are already in place, it said.

While the NDA could form the government, the country could also see a new prime minister other than Narendra Modi.

Some of the key alliance partners of the BJP could switch sides, resulting in the opposition alliance INDIA block coming to power. This scenario would lead to meaningful changes in the government's policy trajectory.

Scenario 1 would be the most positive for Indian markets, according to UBS. While the election mandate is for five years, India's state elections could change the national policy thought process sooner or later, it said.

The stress in mass market consumption may come into focus for the Indian government, and while the overall focus on infrastructure and capex will continue, there could be some fiscal room for populist measures, UBS said.

From a market perspective, the government's program to boost manufacturing in the form of PLI schemes will likely continue, but it will be difficult for the government to significantly increase the amount of money being offered as incentives, it said.

The Indian government's plans for reforms in agriculture, food, land, and direct taxes might be delayed or even shelved, according to it.

The current election outcome was not what market valuations were set up for. While valuations have been expensive, the richness was also partly on the back of political and policy stability the strong government gave, UBS said.