India’s election outcome and its economic implications

India has recently concluded a national election, one which has taken place over the past six weeks and has seen nearly 650 million people flock to the polls to elect India’s political leadership over the next five years. The country officially announced its elections results on 4 June, the turnout was quite high with 66.3% of voters participating. 

India's election outcome and its economic implications

  • Election outcome: Narendra Modi is on course for his third mandate as a Prime Minister, but the results were much more subdued compared to the exit polls. The first big change is that Modi would have to govern, without his party BJP having a majority on its own. He will depend on NDA allies to form a government. One of the main question marks is whether the reduced parliamentary majority will allow enough stability to carry on with the political agenda.
  • Market reaction: markets reacted negatively to a thinner majority for Prime Minister Narendra Modi-led alliance. The Indian equity market declined sharply, bond yields spiked, and the rupee depreciated. Despite the widespread sell-off on Tuesday, Indian equity indices have recovered post-election losses and have experienced a remarkable surge, standing at closing levels of last week in a highly volatile market.
  • Macro overview: the economic outlook remains robust, with a very strong economic performance led by domestic demand and committed to fiscal consolidation. While there is a buffer to accommodate more social expenditure, fiscal indicators should be carefully monitored. With an orthodox Monetary policy, inflation is gradually cooling. We don’t see any material change in RBI1 stance: no rush to cut and the room to ease is limited, thanks to the Indian growth-inflation mix.
  • Investment implications: we are positive on Indian assets driven by economic growth, macro stability and strong demand. Solid earnings dynamics and favourable long-term structural tailwinds make India’s equity markets attractive, with a potential bigger place in global investment portfolios.

1.Reserve Bank of India

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