Will BJP's Landslide Victory Trigger a Short-Term Rally on D-Street? Ajay Bagga Weighs In

Benjamin Graham, known as the father of modern value investing, had famously said nearly a hundred years ago,” In the short term, markets are like voting machines. In the long term they are like weighing machines.”

Over the last decade, Indian state assembly elections have periodically influenced the stock markets, though their impact tends to be short-term and often localized to specific sectors and companies. State elections serve as a barometer for national political trends. Significant wins or losses by major political parties, especially the ruling coalition at the centre, impact market sentiment. Since the 2014 general elections, state elections have taken on greater significance, due to BJP's expanding footprint. A strong BJP showing in state elections often leads to a market rally, reflecting confidence in economic reforms, infrastructure push and policy continuity.

For instance, after the assembly elections in Uttar Pradesh (UP) in 2017, where the BJP gained a landslide victory, markets rallied, signalling optimism for economic reforms and policy stability. In the stock markets, we say that history does not repeat, but it does rhyme. The landslide win for the BJP led coalition in the Maharashtra state elections could lead to a short-term boost to the Indian stock markets which have been in a declining mode since the last peak made in the last week of September 2024.
Election outcomes often dictate state-level reforms, infrastructure spending, and fiscal policies. A government perceived as business-friendly bolsters sectors like infrastructure, real estate, and banking.

Conversely, fragmented mandates lead to market caution. This was evident during the Maharashtra elections in 2019, where political instability caused mild market dips until clarity emerged.

The just concluded elections in Maharashtra, the results of which were declared on November 23rd, will have a positive immediate impact on the stock markets. The BJP led coalition has improved its vote share from around 42 per cent in 2019 (BJP plus Shiv Sena united) to a massive 48 per cent (BJP plus Shiv Sena Shinde plus NCP Ajit). This translated into a massive landslide victory for the BJP led coalition, which won 230 of the 288 seats, with some supporting smaller parties and independents also expected to announce support. Maharashtra has more than 9 pe cent of India’s population and land mass, and contributes nearly 14% of India’s GDP. As such, a victory in Maharashtra for a coalition that is ruling at the centre as well, has significance for the economy and for policy as well.

Though these are still early days for the coalition governing at the centre, but such a landslide victory in a key, major state like Maharashtra provides more strength to the BJP and will serve as a model for successful coalition-based poll campaigns ahead. 
Investors will interpret this mandate as favourable for the capex and infrastructure push that is ongoing in Maharashtra. The beneficiary sectors of this election are industrials, infrastructure, manufacturing, real estate and financials.
A second order impact will be on the Rajya Sabha strength of the ruling NDA coalition. At present, of the 19 Rajya Sabha seats in Maharashtra, the NDA has 10 MPs, while the opposition have 9 MPs. As the Rajya Sabha seats come up for re-election, the NDA will secure more of these, adding to its tally of 119 out of 245. With 4 nominated MPs to be appointed, the NDA is nearing the majority mark in the Rajya Sabha as well.

Overall, expect a positive market open on Monday as Indian stock markets welcome policy continuity, stability and the second order impact of strengthening the federal government coalition as well. Partner parties will welcome the gain in vote share and the ability to consolidate and transfer votes amidst the coalition.

In the medium to long term, the Indian stock markets will depend on the corporate earnings and fundamentals, but these state elections, by providing a stable government will help the short-term sentiment and remove the overhang that a fragmented mandate would have signified.