Bitter disappointment despite the election victory

The stated goal of Prime Minister Modi and his BJP party was to win not only a hefty majority in the Indian parliament, but at least 400 of the 543 seats. This would have paved the way to amending the constitution and the list of changes that the Hindu nationalists wanted to make grew longer and longer during the campaign. It is possible that this was a bit much for some voters, despite Modi’s popularity. India’s opposition parties also presented quite a unified front, ultimately thwarting BJP’s plans. Instead of a two-thirds majority, BJP was not even able to achieve an absolute majority (taking 240 seats, down from 303). Consequently, BJP must now rely on its allies to forge a majority. While this should not present too much of a problem, it is an unusual situation for Modi, who has been able to count on his own majority in parliament during his previous terms in office.

Headwinds in BJP’s core areas

It is important to understand that, following the British tradition, in India the candidate who receives the most votes in one of the 543 electoral districts wins the parliamentary mandate. In this case, it is often a decisive factor how many and which candidates stand for election. On the whole, BJP only received slightly fewer votes (36.6% versus 37.4%) than five years ago (and its electoral alliance actually took 2% more votes), but compared to 2019 it lost one fifth of its seats in parliament. One key aspect for this outcome was that BJP fared surprisingly poorly in its core support region, the most populous Indian state of Uttar Pradesh. According to the initial analyses, BJP paid the price for treating some important constituent groups in a condescending or even hostile manner in recent years. Many farmers, Dalits (Hindus of the lowest caste), and Moslems apparently voted emphatically for the opposition in this election.

Only a brief reaction by the equity markets

When the elections polls predicted a clear majority in favour of PM Modi, the Indian equity markets celebrated enthusiastically with a new all-time high. This was followed by a mini-crash of 7-10% lasting a few hours, when the actual results showed a huge discrepancy. Recently, the markets advanced to yet another record high, and thus it seems that the election results have now been digested by the markets. It appears certain that the previous market-friendly policies will be continued; at the same time, BJP cannot just do whatever it wants to (escalation with Pakistan over Kashmir by way of an amendment of the Indian constitution was a real topic of discussion during the election). Thus, the markets are satisfied for now. Looking at the economic conditions, the situation still appears to be good, with robust growth and high, but falling inflation. However, one fly in the soup is the recent increase in the rate of unemployment to over 8%, which was probably a factor in the elections that did not help Modi out.