Battleground Maharashtra: Why Macquarie thinks markets will focus on the upcoming state election

Maharashtra is the second-largest state in Lok Sabha, with 48 seats.

Market participants will be closely tracking the upcoming Maharashtra state elections, slated for November, more so after the mandate in the recently concluded Lok Sabha elections.

Maharashtra becomes an important state for the National Democratic Alliance (NDA) following the "unfavourable outcome" in the Lok Sabha elections, said foreign brokerage Macquarie, adding that state elections have become important market events.

Why Maharashtra Elections Matter?

Macquarie has listed a slew of factors that make Maharashtra a key battleground. With both major political alliances "evenly matched", it enlists key factors as to why India and investors alike will be closely tracking the results:

• Maharashtra is the second-largest state in Lok Sabha, with 48 seats
• The state also contributes to India's GDP with largest share at 13-14 percent
• The states' per capita income is 30 percent above the national average
• The state has a 16 percent share in total exports from India
• Highest share (19 percent) in startups recognised by GoI at an all-India level
• Has remained at the top position in FDI inflows in India

Battle for Seats

The 2024 contest becomes complex as the parties comprising of the BJP-led Maha Yuti - which now governs the state - saw its Assembly seat share dwindle in the Lok Sabha polls concluded in May 2024. The main opposition, INDIA-led MVA (Maha Vikas Aghadi) fared better, the Macquarie note observed.

The four main regional parties that will determine the fate of the elections are Shiv Sena - UBT; Shiv Sena - Eknath Shinde; NCP - Ajit Pawar; and NCP - Sharad Pawar.

"We think looking at current opinion polls, exit polls, and even at past Vidhan Sabha election outcomes will be futile, considering that regional voters now have to make a choice between four parties instead of two, and there are only a few differing ideologies and approaches between the four parties," Macquarie note said.

Will Populism Come to the Rescue?

Soon after the Lok Sabha elections, Maharashtra's Deputy CM presented a state budget packed with populist measures. Of this, one major proposal announced was cash aid for women in low-income households.

According to Macquarie, these handouts will push the fiscal deficit beyond the 2.6 percent which is estimated for FY25E. The central government allows states to incur a fiscal deficit of 3 percent of GSDP (Gross State Domestic Product). An additional 0.5 percent is availble if certain power sector reforms are undertaken. The state may need to cut capex or revenue expenditure to meet this target.

On July 10, 2024, the Maharashtra state government requested Rs 95,000 crore in supplementary demands, which was approved.

"Taking into account this additional supplementary demand and marking up the nominal GDP projections, the fiscal deficit for FY25 revised fiscal deficit shoots well beyond 3 percent and will be a grave matter of concern, in our view," said Macquarie.

Concerns Over Infrastructure Push

A key cause of concern that some investors might flag is that an MVA-led government might give infrastructure projects lower priority as compared to the BJP-led Maha Yuti alliance.

"Hence, we think it becomes imperative to closely track some of the major projects that have been planned in the state and the implications for companies that are involved in executing those projects," concluded Macquarie.

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