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Business News/ Markets / Stock Markets/  Maharashtra election results may spur NDA to step up on reforms
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Maharashtra election results may spur NDA to step up on reforms

Analysts said the government may now need to balance its economic and political objectives
  • BJP’s underperformance in rural constituencies is reminiscent of the struggle it has been facing in multiple state polls since 2018
  • According to Kotak Institutional Equities Research, the results of the assembly polls may push the govt to double-down on policy measures to address the ongoing slowdown. (Ramesh Pathania/Mint )Premium
    According to Kotak Institutional Equities Research, the results of the assembly polls may push the govt to double-down on policy measures to address the ongoing slowdown. (Ramesh Pathania/Mint )

    MUMBAI : A weaker-than-expected performance by the Bharatiya Janata Party (BJP) in the recent assembly elections may prompt the government to focus on demand-revival or structural reforms.

    Analysts said the assembly results signal that the narrative on the economy and income growth is assuming more importance with high-frequency indicators—such as, monthly auto sales data, Purchasing Managers’ Indexes (PMI) manufacturing data—reflecting a sharp economic slowdown, and weak consumption demand over the past six months.

    The BJP-Shiv Sena alliance won a simple majority in Maharashtra, winning 161 out of 288 seats. The tally was 24 seats lower than the 2014 outcome. In Haryana, the BJP lost 7 seats from its 2014 tally, but managed to form a government with the support of the Jannayak Janata Party.

    According to Kotak Institutional Equities Research, the results of the assembly elections may push the government to double-down on policy measures to address the ongoing economic slowdown. “It would be interesting to watch the government’s response to a weaker-than-expected performance in the two state elections post a thumping win in the national elections less than six months ago… We argued earlier about a likely pivot to investment-led economic recovery but the electoral ‘hiccup’ may force the government to focus more on near-term demand-recovery. In this context, we believe the risks to fiscal slippage may have increased," Kotak Institutional Equities said in a note on 24 October.

    Analysts said the government may now need to balance its economic and political objectives within the constraints of a stretched fiscal situation.

    The BJP’s under-performance in rural constituencies is reminiscent of the struggle it has been facing in multiple state elections since 2018, wherein adverse terms of trade had dented rural income, said analysts at Nomura. “On the policy front, these elections should not have a material impact, although it could push the government to hasten payment to farmers under the existing PM Kisan scheme. However, with the model code of conduct now lifted, the government is free to announce measures to revive the economy, over and above the fiscal stimulus of corporate tax cuts among others," said Nomura in a note on 24 October.

    After the reduction in corporate tax rates, market participants had high expectations of a cut in individual income tax and goods and services (GST) rates. Nomura said that India’s sub-par growth so far has increased the risk of further fiscal intervention, including via personal income tax rationalization, though the timing of any such move remains uncertain.

    Following the cut in corporate tax rates in September, benchmark indices, the Sensex and the Nifty, rallied nearly 4% after three months of consecutive weakness. In October so far, the Sensex has gained over 1%, while liquidity started flowing into Indian markets.

    In October, foreign institutional investors (FIIs) were net buyers of Indian shares worth $550 million after an inflow of $950 million in September following a massive withdrawal by FIIs since July. Domestic institutional investors (DII) were net buyers worth 5,421.61 crore and 12,490.81 crore in October and September, respectively.

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    Published: 28 Oct 2019, 06:34 PM IST
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