• 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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