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Business News/ Markets / Stock Markets/  Assembly election results 2023: How will the Indian stock market react?
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Assembly election results 2023: How will the Indian stock market react?

Assembly election results 2023: While the Congress celebrates its victory in Telangana, its strength in the South may not be enough to take on the BJP in the 2024 Lok Sabha elections.

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The Bharatiya Janata Party is set to form governments in three states—Madhya Pradesh, Rajasthan and Chhattisgarh—out of the five that went to polls recently. The Indian National Congress won in Telangana while Mizoram’s results are due tomorrow. Check the latest numbers here.

While too much should not be extrapolated from state assembly elections as they typically revolve on local issues, the current ones are different. One, they came very close to the 2024 General Election scheduled for May next year where Prime Minister Narendra Modi will be defending his two-term Government at the hustings. A loss for BJP would have put it under significant pressure. Stock markets would have begun worrying.

Two, these elections were a test of the Congress’s resurgence. The party’s victory in Karnataka Assembly election had generated a lot of hope that it will be the beginning of its comeback. Its leader Rahul Gandhi’s Bharat Jodo yatra, many thought, has put the party on a winning run. Immediately after Congress’s Karnataka victory, opposition parties came together to form the I.N.D.I.A alliance in a bid to unseat BJP at the Centre. The future of this alliance depended a lot on the outcome of these elections.

Here we present for you the five key takeaways from the just concluded State assembly elections.

Hindi heartland firmly with BJP

Of the 519 assembly seats in play in Madhya Pradesh, Rajasthan and Chhattisgarh, the BJP has won or is leading in over 330 seats. In Madhya Pradesh, the party has overcome anti-incumbency despite being in power for four terms. The Congress, on the other hand, could not retain power after just a single term in Chhattisgarh and Rajasthan. Such a show just four months before the forthcoming 2024 Lok Sabha elections means the BJP is on a very strong footing as it fights for a third term under Prime Minister Narendra Modi.

Congress’ resurgence stopped in its tracks

The Congress’s victory in the Karnataka Assembly elections in May led to the formation of I.N.D.I.A — an opposition alliance involving over two dozen political parties. Their aim is to dislodge the BJP government at the Centre in the 2024 elections. However, this comprehensive loss to BJP in the Hindi heartland might well have ended the short-lived Congress resurgence.

Impact on the I.N.D.I.A alliance

Congress’ loss, especially where it was head-to-head with BJP, will considerably weaken its position in the I.N.D.I.A alliance. Many regional parties such as Trinamool Congress, AAP, JD(U) and others are the greatest beneficiaries of this loss. They will now demand a greater say and seats in the alliance. Such a move will considerably weaken the alliance efforts to project a cohesive opposition that can, when elected, offer a stable Government. BJP will find it easy to play the instability card and win votes. This Congress defeat in the Hindi heartland will at best weaken the alliance and at worst, break it.

The North-South divide

Congress’ only consolation is its victory in Telangana where it has comfortably defeated a two-term Bharat Rashtra Samithi (BRS) government. It benefited from the anti-incumbency that BRS faced after being in power for 10 years since the formation of Telangana state. BJP, for its part, has gained vote share. This victory clearly showed that Congress still has clout South of the Vindhyas. It won Karnataka in May and now Telangana.

Can Congress’ strength in the South be good enough to take on BJP in the 2024 Lok Sabha elections? The South has just 130 seats of the total 543 Lok Sabha seats nationally. Thus, a strong performance in the South may not be enough. The Congress needs to do well in the Hindi heartland and other parts of the country.

BJP, on the other hand, needs a `South Strategy’ if it has to do very well in the 2024 Lok Sabha elections. It is a non-entity in Tamil Nadu and Kerala. It has done well to stitch an alliance with JD(S) in Karnataka after its loss in May. The electoral arithmetic favours the BJP-JD(S) alliance in the Lok Sabha polls. BJP needs similar measures in other Southern states.

What do these election results mean for the stock markets?

The election outcome will surely please the stock markets with experts predicting a strong opening tomorrow. Stock markets clearly want stability and BJP’s performance in the recent State Assembly elections, especially in the Hindi heartland — its core vote base—should give a boost to the markets.

A strong BJP would mean a stable government while an I.N.D.I.A alliance, with a weak Congress, can at best offer a rickety coalition. A stable government and policy continuity would be key positives and lead to further upsides in the market. Moreover, the results would also assuage concerns that losses for BJP would set off a spiral of competitive populism in the country with adverse long-term fiscal consequences, as this Mint Snapview points out.

“A decisive BJP win will reinforce the consensus view that the party is on the front foot for the 2024 general elections. This will likely add a further leg of the rally to the markets as policy continuity will be viewed as a positive growth shock in the medium term," said Emkay Global Securities.

On Friday, the Nifty hit a record 20,291.55 during the day thanks to stellar GDP growth of 7.6% in the second quarter and positive cues from state exit polls. It closed at an all-time high of 20,267.90, up 0.67%.

In a 13 November note, Morgan Stanley said that a decisive BJP victory in the Lok Sabha elections in May next year could see BSE Sensex rising by 10%. A BJP defeat and emergence of a coalition Government will trigger a 40% fall in Sensex.

The author of the piece is N Madhavan

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Published: 03 Dec 2023, 08:12 PM IST
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