The BJP-led National Democratic Alliance (NDA) won India's 2024 general elections, but with a smaller majority than in 2019. These thinner mandates could put pressure on India, according to a post-election analysis by Goldman Sachs, UBS, Bernstein and Citi. The government, known for transforming India into a global manufacturing powerhouse and investing in sectors to reduce the country's dependence on Western countries, has decided to embrace a more populist stance during its third term, prioritizing the needs of low-income earners and rural development.
NDA's potential victory means policy continuity for businesses and startups through continued investments in infrastructure, digitalization and manufacturing. But tighter margins could trigger a reallocation of resources to rural and welfare schemes, potentially impacting some capital spending plans, the brokerage warned. (On Tuesday, manufacturing giant Adani Group lost about $45 billion in market capitalization.)
“Continuity of power may not fully translate into continuity of current policy, but there is less room for large-scale adjustments. This government features more pro-market and less socialist policies. A significant change from the past is that cost of revenue has increased nearly 11% over the past six years, while capital expenditures have increased 24%,” Bernstein wrote in a note.
The BJP's unyielding stance on digital sovereignty and recent clashes with Big Tech are also likely to continue. Over the past five years, the Narendra Modi government has implemented or proposed many laws, including pushing for regulation of internet apps, making streaming services subject to review for pornographic content, and suing WhatsApp to decrypt meta apps. Big tech companies scared.
New Delhi has maintained that it is trying to protect the interests of its citizens through its proposals.
America's ally India is also increasingly trying to build a technology stack that can compete with many popular and generally American products. Rupay is India's attempt to compete with card networks Visa and Mastercard, while UPI, an interoperable real-time payments system built by Indian banks, is already widespread in India, processing more transactions than all card networks combined.
India has also rapidly established itself as a global manufacturing hub in recent years, providing lucrative incentives for companies including Apple, Samsung and Google to shift their assembly needs to the country. Goldman Sachs and Citi said India is likely to continue to focus on manufacturing, but future fiscal allocations may be lower than expected.
India's benchmark indices NIFTY and SENSEX closed down 5.9 per cent and 5.7 per cent on Tuesday after exit polls showed that only the BJP would win a majority of seats, which turned out to be inaccurate.
“In an extreme scenario, if the opposition party (Congress and its allies) ousts a key ally, the approach to investing in India would change significantly,” Bernstein said.
