Tuesday saw Indian Prime Minister Narendra Modi appear poised to hold onto his position leading a ruling coalition, but voters defied expectations of yet another landslide as his Hindu nationalist party lost its outright majority for the first time in ten years.
The result unsettled investors, causing stocks to plummet sharply as it became clear that Modi would be reliant on at least three dissimilar regional parties, whose political allegiances have fluctuated over time, for the first time since his election-day victory in 2014.
After a decade in which Modi has ruled with an iron grip, analysts say this could bring some uncertainty to policymaking in the most populous democracy in the world.
India’s period of erratic coalition governments came to an end in 2014 when Modi’s Bharatiya Janata Party (BJP) achieved a majority on its own. In 2019, the party repeated the victory.
For the third time, Modi said, people had trusted the BJP-led coalition, and that was historic. These were his first remarks since the vote count started.
At the BJP headquarters in New Delhi, Modi greeted jubilant party members, saying, “The blessings of the people for the third time after 10 years boosts our morale, gives new strength.”
“Even with their unity, our opponents could not even win as many seats as the BJP did.”
Without providing more details, Modi stated that his third term would be focused on electronics, semiconductors and defense manufacturing, renewable energy, and the agriculture sector. He also pledged to work harder and make “big decisions.”
Both the S&P BSE Sensex and the blue-chip NIFTY 50 fell roughly 6%, marking the steepest decline on election outcome day since 2004, when a coalition led by the BJP lost power. The sell-off of shares by foreign institutional investors totaled a record 124.36 billion rupees ($1.5 billion).
Additionally, it was the worst session since the blue-chip indexes collapsed in March 2020 as a result of COVID-19 lockdown restrictions. In addition to the rupee’s steep decline versus the dollar, benchmark bond yields increased.
After exit polls on June 1 predicted that Modi and the BJP would win handily and that the ruling National Democratic Alliance (NDA) would win at least a two-thirds majority, markets saw a sharp increase on Monday.
As the counting was coming to an end, TV channels reported that as of 16:15 GMT, the NDA was leading in roughly 290 of the 543 elective seats in the lower house of parliament, where 272 represent an overall majority.
Complete results should be available later on Tuesday night.
They revealed that, in contrast to the 303 seats it won in 2019, the BJP controlled about 240 of the seats where the NDA was leading.
Notwithstanding rumors in the local media that they might be shifting their support or even defecting, two important regional allies of the NDA declared Modi their choice to be the next prime minister.
The Telugu Desam Party (TDP) and the United Janata Dal (JD) declared that they would form the next government and that their pre-poll alliance with the BJP remained intact.
The BJP’s dismal performance in Uttar Pradesh, the most populous state in the nation and home to 80 lawmakers serving in parliament, probably contributed to the party’s low polling numbers.
The BJP was leading in 33 of the state’s 62 seats, down from 62 it had won in 2019. According to analysts, the party’s appeal to the Hindu majority had been eclipsed by everyday problems.
They claimed that despite expectations, the BJP’s fortunes did not improve following Modi’s January opening of a massive temple dedicated to the Hindu god-king Lord Ram.
More than 230 seats were held by the opposition INDIA alliance, which was led by Rahul Gandhi’s centrist Congress party.
Congress alone was leading in almost 100 seats, which is nearly twice as many as the 52 seats it won in 2019; this unexpected increase is anticipated to improve Gandhi’s standing.
Gandhi addressed reporters, referring to Modi’s formidable deputy, Home Minister Shah, and saying, “The country has unanimously and clearly stated, we do not want Narendra Modi and Amit Shah to be involved in the running of this country, we do not like the way they have run this country.” “There’s a big message there.”
When asked if the opposition would attempt to form a government, Gandhi replied that Congress would hold discussions with its allies on Wednesday and decide on a future plan of action.
Panicked markets
Though the margin of victory became a concern during the counting, investors had cheered the prospects of another Modi term, expecting it to deliver more years of strong economic growth and pro-business reforms.
“The ability of the BJP to maintain a one-party majority is the crucial question. If not, how would its coalition accomplish infrastructure development in particular and economic development in general?” stated Ken Peng, Citi Global Wealth’s head of investment strategy for Asia, who is based in Singapore.
When asked if the opposition would attempt to form a government, Gandhi replied that Congress would hold discussions with its allies on Wednesday and decide on a future plan of action.
Panicked marketsIn order to support welfare and other local government spending, there might be more expansionary fiscal policy, he stated.
The chief investment officer of Mirae Asset Mutual Fund, Neelesh Surana, stated that the market had overreacted due to a sense of shock. He added, “Yet there will probably be underlying continuity in government policies despite the verdict.”
After Jawaharlal Nehru, the man who led India to independence, Modi, 73, came to power in 2014 on a platform of growth and change. He was vying to become only the second prime minister in history to win three consecutive terms.
Though the margin of victory became a concern during the counting, investors had cheered the prospects of another Modi term, expecting it to deliver more years of strong economic growth and pro-business reforms.
“The ability of the BJP to maintain a one-party majority is the crucial question. If not, how would its coalition accomplish infrastructure development in particular and economic development in general?” stated Ken Peng, Citi Global Wealth’s head of investment strategy for Asia, who is based in Singapore.
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