Advantage Modi as BJP sweeps 3 states; Indian stocks scale fresh highs

On the eve of India’s national elections, five states’ assemblies went to polls, as political parties vied for control in what is being termed as a virtual semi-final.

These included Rajasthan, Madhya Pradesh, Chhattisgarh, Telangana, and Mizoram.

Although state ballots are usually decided on local issues, and as such should be taken with a grain of salt, with less than five months to the general election, these undoubtedly provide a strong indicator of what the electorate is likely to do come 2024.

Where the chips fell

The Narendra Modi-led Bhartiya Janta Party (BJP) has outperformed expectations by securing decisive victories in three key states, thereby virtually ending speculation that the Indian National Congress’s (INC) victory in the Karnataka polls earlier this year would pave the way for a comeback on the big stage.

In Madhya Pradesh, a state of over 72 million people, the BJP has beaten back the ghost of anti-incumbency and is now headed to kick off a fifth consecutive term in power.

The party took 163 of the 230 seats, while the Congress was a distant second at 66.

In Rajasthan, another key state with a total population of nearly 84 million, the BJP has either won or is leading in 115 seats out of a total of 200 seats, with the Congress in command of 69 seats.

The Mayawati-led Bahujan Samaj Party (BSP) is leading or won only 2 seats.

In Chhattisgarh, the BJP came over the line, winning 54 seats to secure a majority, as against the Congress who were ahead in 35 local constituencies.

The results of the latter two states would have left the INC bitterly disappointed, as the Grand Old Party of India assumed the reins of government in the previous election cycle.

In these three crucial states, the BJP is leading or has won in 332 constituencies, out of a combined 520 seats, i.e., 64% of the seats, reaffirming the wide popular support that the ruling party continues to enjoy.

Congress hits back

However, the Congress tasted much-needed success in Telangana, winning 64 of the 119 seats in the legislature, while the previously ruling Bharat Rashtra Samiti (BRS) only mustered 39 seats.

As mentioned above, earlier in the year, the Congress party won a majority in the Karnataka assembly, demonstrating that it still maintains influence in parts of the Southern region of India.

The BJP, unlike the Congress, does not enjoy widespread support in the region, securing only 8 seats in Telangana.

I.N.D.I.A opposition

The INC’s victory in Karnataka galvanized opposition parties, driving the creation of the Indian National Developmental Inclusive Alliance (I.N.D.I.A) coalition by the Congress party and several regional partners.

However, the INC’s inability to make inroads into the BJP and the National Democratic Alliance’s (NDA) core national constituencies such as in Chhattisgarh, Madhya Pradesh, and Rajasthan, has dampened their prospects for the coming elections, with the Southern states accounting for about 24% of the seats in the lower houses of Parliament.

In the 2019 national elections, in Madhya Pradesh, Rajasthan and Chhattisgarh, the BJP and INC secured 27 seats and 2 seats, 25 seats and 0 seats, and 10 seats to 1 seat, respectively.   

Losses incurred in the state assemblies will likely trigger infighting within the opposition as to the allocation of seats which may eventually deplete the power of the coalition.

In Mizoram, the Zoram People’s Movement (ZPM) is leading in 26 of the 40 seats, while the Mizo National Front (MNF) is in second place, having either won or leading in 11 seats.

The BJP is ahead in 2 constituencies while the Congress leads in 1.

Markets reacted positively

These results are a strong indication of the ruling party’s chances in the 2024 elections and could herald a historic third term for Prime Minister Shri Narendra Modi.

As a result, analysts anticipate continuity in national policy and the focus to remain squarely on market-oriented reforms and increased capital expenditure, boosting investor confidence.

At the time of writing, the NSE NIFTY has sped to 20,605.1, 3337.2 points or 1.66% higher on the day; while the BSE SENSEX was up 1,099.3 points or 1.63%, reaching 68,577.2.

Both the NIFTY and Sensex climbed to all-time highs earlier in the session at 20,624.10 and 68,645.23, respectively.

The rally higher was supported by the easing of global oil prices, a friendlier global macroeconomic environment, and the return of foreign investors to Indian markets in the previous weeks.

In the week ending Friday, December 1, 2023, the BSE and NSE together saw ₹1,590 Cr inflows from foreign investors and ₹1,448 Cr by domestic institutional investors.

Collectively, this amounts to ₹3,3038 Cr, which propelled the BSE and NSE higher by 2.3% and 2.4%, respectively, in the previous week.

New bull phase?

In November, Morgan Stanley projected a 10% rise in India’s BSE Sensex if the BJP returned to power with a decisive mandate in 2024.

On the other hand, the impact of displacing the BJP was projected to trigger a 40% decline in equities.

Thus, the highly positive results in the state assemblies may have paved the way for a much longer bull run for Indian stock markets, especially given the decline in the US 10-year paper over the previous month.

 Deven Choksey, director, DRChoksey Finserv, noted,

Every level is meant to be surpassed, whether it is 20,000, 21,000 or 23,000—all these levels are going to be surpassed in due course of time because the growth in the economy is convincing.

With a bull rally expected to continue, investors remain optimistic about rural stocks and healthcare companies, while the NIFTY may even surmount the 21,000 mark this year.

Later this week, investors will closely watch the Reserve Bank of India’s MPC announcement.