BJP’s election sweep calms populism fears, allays market concerns about political risks

“As some investors were worried that a poor showing by the BJP in the state elections would increase the risk of more fiscal populism, the actual results should calm such fears. However, we believe that competitive populism will remain a theme for the 2024 general elections,” said analysts at Nomura.

The free handouts culture has made a comeback, and Elara Capital expects the centre to announce schemes in the run-up to the CY24 elections. State finances are set to come under stress amid populist schemes announced by the BJP as well as the Congress.

Better than expected outcome for BJP reinforces policy continuity at the Centre in 2024. “While the government has announced a few populist measures- an LPG cylinder price cut, extension of the free food grain program for five years and potentially some more could follow in the run-up to May, we don’t see it impacting fiscal consolidation. Better-than-expected tax revenues are expected to offer additional resources, allowing the fiscal deficit to stay on course to achieve the targeted 5.9 percent of GDP in FY24,” said analysts at BofA Securities.

Meanwhile, brokerage CLSA expects both central and state governments to combat agflation via price controls or subsidies.

BJP’s resounding win cuts political risks for markets

While state election results have not been a good leading indicator of general election results, Nomura believes that investors will most likely view these developments positively in anticipation of reduced policy and political risks into 2024.

The election results are certainly a cut above market expectations. And markets, to that extent, shall cheer the outcome in the near term, according to Nuvama. However, the brokerage noted that fundamentals—earnings, liquidity and interest rates will have an upper hand in shaping the market outlook over the medium term.

“The ruling party’s strong performance provides it political capital to pursue the infrastructure push. Concurrently, it lowers the need for a populist turn. Accordingly, the anticipated rural spending push may not come through,” said analysts at Nuvama.

Also Read: Markets likely to gain further as BJP sweeps MP, Rajasthan, Chhattisgarh; Nifty may test 20,620-20,810

Rural-driven, healthcare sector stocks to be in focus as BJP targets welfare schemes

Considering the poll verdict, Elara reiterates FY24E GDP growth of 7 percent for FY24E and sees growth at 6.5 percent in FY25E. Despite expected spending on free handouts, the brokerage retains the FY24E CPI projection of 5.4 percent as core inflation will likely continue to soften.

“Sector-wise, we see rural and healthcare-focused stocks coming back into focus with the BJP’s execution of schemes being more clinical and targeted. The victory should further diminish expectations of a fuel price cut at the retail level and hence should provide a leg-up to the performance of oil marketing companies (OMC) stocks. We see order inflow momentum weakening for capital goods and infrastructure companies at least until Q2FY25,” said analysts at Elara Capital.

BJP's win in 3 states is much better than what exit polls suggested. “Result reinforces consensus expectations of a Modi win in the 2024 national poll. Boost to investor sentiment should augur well for domestic cyclical sectors like banks, industrial, power, property and midcaps. Competitive populism from both the BJP and Congress is also clearly visible,” said analysts at Jefferies.

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NSE Nifty 50 soared to a fresh all-time high at 20,291.55 on December 1. Prashanth Tapse, Senior VP (Research), Mehta Equities, believes a stable political environment could drive Nifty to 20,500-20,800 levels going ahead. Optimistic global trends including signs of foreign investors making a comeback in domestic markets are major factors that will drive the upward movement going forward, he added.

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