BJP’s election slogan “Every win is a win” created a halo effect on the stock market. The target of 400 seats was set as a psychological extension of the NDA’s overwhelming two-thirds majority (352 NDA seats) in 2019. Moreover, the government’s strengthened leadership and performance during COVID also contributed to this sentiment. For the past three months, the stock market had been booming with an average estimated number of seats for the NDA based on pre-election polls of 375. However, as the voting progressed, the predictions eased to 300-350 seats from a range of 350-400 seats.
The consolidation of the projection hinges on two key factors. First, relaxed voter turnout data reveals a 3% decline compared to the 2019 elections from Phase 1 to Phase 3. This decline casts doubt on the strength of the “Modi wave”. Second, intensifying local politics may narrow the initial projection of a landslide victory, adversely impacting the BJP.
In political science, high voter turnout is encouraged because it reflects optimal performance of democratic rights. High voter turnout indicates that voters are determined to exercise their power. A significant increase in votes indicates urgency for a change in political leadership, which is generally predicted to be negative for incumbents. However, as we saw with the 2014 Modi wave, classifying a people’s rights movement requires understanding the current issues and the voice of the people. This new voice led to a significant increase in voter turnout of 820 basis points, from 58.2% in 2009 to 66.4%.
When assessing the current political economy, there are no obvious fundamental problems in India. The performance of the current government has been steadily improving both nationally and globally. India’s ranking as an economic power, global contributor and source of intellectual capital has been steadily improving. The fiscal health of the country is at its best since independence.
However, the most important consideration is the regional politics which has been declining over the years. The main challenge lies in state-wise contests. For instance, the situation is stagnant in states like Maharashtra. There, the popular belief on political socialisation has been disrupted by political dramas, Shiv Sena-NCP split, leading to a fragmented political landscape. Maharashtra is a crucial state for the NDA’s strategy having secured 23 seats in 2019. The alliance with Sena and NCP factions will be put to the test with a focus on PM Modi’s charisma. This kind of political clash continues in the southern states where the BJP’s influence is weak. Regional differences will be a factor in determining the total number of seats won by the NDA.
At the same time, the market seems to be over-analysing the slight drop in voter turnout, as it has improved since phase 4. The overall drop in voter turnout based on phase 6 data is only -1.4 percentage points, from 66.9% in 2019 to 65.5% in 2024. The slight drop in voter turnout, especially since phase 3, was a big topic in the media when the Election Commission’s release of the data was delayed by a few days. This change does not necessarily indicate a change in voter preferences; it could have positive or negative implications for the BJP and the Congress. It is also speculated that the initial drop in voter turnout was due to the severe heatwave that continues to affect the northern states.
Importantly, the “Modi Wave” frenzy is still going strong. The total voter turnout up to the sixth phase was 65.5%, considerably higher than 58.2% in 2009, an increase of 730bps. The 2014 slogan “achhe din aane waale hain (elections are bound to happen)” still holds true sincerely. But in the short term, the stock market is caught between the hyperbole of “char sua paar (elections are bound to happen)” and “low voter turnout.”
The market understands that the chances of a change in leadership are negligible. Hence, no change in economic policy is expected and the Indian economy is projected to continue to thrive. That said, the excitement around winning a majority may lead to some disappointment, especially if the total number of seats won by the NDA approaches 300. If a setback occurs, the sectors that have performed best in the past five years will be most affected. These sectors include defence, industry, manufacturing, infrastructure and state-owned enterprises. However, with the total number of seats won by the NDA being around 350, a sharp reaction is not expected. If the current trend continues, these sectors will maintain momentum in the short to medium term.
Disclaimer: The views and recommendations provided in this analysis are those of the individual analysts or brokerage firms and not those of Mint. As market conditions change rapidly and individual circumstances may vary, investors are strongly advised to consult with a qualified professional before making any investment decisions.
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