The performance of the Bharatiya Janata Party (BJP) led by Indian Prime Minister Narendra Modi in the election fell below expectations, leading to the most severe single-day market decline in India in four years.
On Tuesday, June 4th, the Indian NIFTY 50 index plummeted by 5.93%, while the BSE Sensex index dropped by 5.74%, marking the largest decline since 2020.
The All India Market Capitalization index, which tracks the Mumbai stock index, lost over 31.06 trillion rupees on Tuesday, approximately $370 billion.
The losses on Tuesday meant that the Sensex index wiped out all its gains for the year in just one day (having risen by approximately 5.85% from the beginning of the year to Monday), tumbling to -0.22%.
Meanwhile, the Nifty 50 index had risen by 7% up to Monday but saw a drop to 0.7% in just one day.
On Wednesday, June 5th, the day after the election results were announced, the market began to digest the impact of the election outcome. Both the NIFTY 50 and Sensex indices opened lower but rebounded throughout the day, recovering some of the previous day’s losses.
Following the 2024 election results, the BJP won 240 seats, still remaining the largest party in parliament and securing a rare third term for Modi as Prime Minister. However, compared to the previous term, they lost 63 seats, significantly diminishing their overwhelming majority in the parliament.
This is in stark contrast to the landslide victories in 2014 and 2019 when the BJP won 282 and 303 seats respectively, securing a majority on their own merits.
Nevertheless, the National Democratic Alliance (NDA) led by the BJP still managed to secure 294 seats, ensuring a majority in parliament and surpassing the 272 seats needed to form a government.
During a speech at the BJP headquarters in New Delhi on Tuesday, Modi declared that his victory would mark a “new golden chapter for India’s development.”
However, the reality for Modi is more complicated as he will now have to rely on alliance partners, some of which may not fully support his economic or political agenda for India.
“We are entering uncharted territory,” said Neelanjan Sircar, a senior researcher at the New Delhi Policy Research Center on Wednesday. “We have never seen the Modi government have to work in a coalition. We know the party has been decisive and centralizing power,” Sircar added. “Can they adjust to the needs of the parties and leaders when leading an alliance?”
He also highlighted the possibility of “unstable relationships” between Modi and his alliance partners.
The opposition led by the Indian National Congress under the banner of the “INDIA” alliance secured 233 seats, a result much better than anticipated.
As the election results were announced on Tuesday, Congress leader Rahul Gandhi stated that the outcome was a victory for the Indian people and democracy.
“This was a battle to safeguard the constitution,” Gandhi said during a press conference, sending a strong message to Modi that “the people do not appreciate your way of governing the country.”
In a report released earlier on Wednesday, Goldman Sachs stated, “Even with the reduced majority, we do not believe macro stability will be affected.”
However, losing the majority position will likely make it more difficult for Modi to push forward structural policy reforms, potentially affecting land reforms crucial for manufacturing sector growth and agricultural reforms aimed at boosting agricultural production.
Therefore, Modi’s main challenge will be how to manage alliance partners, who are likely to negotiate key ministerial appointments.
Goldman Sachs analysts suggest that the Modi government will stick to the announced fiscal consolidation path but may reallocate some spending in welfare areas.
(Adapted from CNBC’s coverage)