BJP, state elections & shares: Should stock investors track 'semi-final' ahead of 2024 polls?

Elections in five states namely Mizoram, Chhattisgarh, Madhya Pradesh, Rajasthan and Telangana, which account for 15 per cent of the total Lok Sabha and Rajya Sabha seats, would kick off next week on November 7, Tuesday. These elections are seen as the semi-finals to the upcoming Lok Sabha elections, which are likely to be held in April or May next year. Stock investors would keenly be following the election outcomes in these states, as they will provide a glimpse into how the Hindi-speaking heartland of India, which is a stronghold of the BJP party perceives the BJP and its policies, said  Antique Stock Broking.

"Swing seats, where the winning vote margin is less than 5 per cent, comprise 30 per cent of the total seats in Rajasthan and Madhya Pradesh, and 20 per cent in Chhattisgarh and Telangana. We believe that it may be critical, especially for Madhya Pradesh as opinion poll verdicts are quite close," the brokerage said.

To recall, BJP won 79 per cent or 177 out of total 225 seats in 10 Hindi speaking states in 2019. Latest opinion polls suggested BJP may be losing some ground, primarily due to a series of populist schemes announced by the INC. But Antique Stock Broking said assembly elections are not a good barometer of the Lok Sabha election (NDA may though lose 4 Rajya Sabha seats in 2024, bringing down their count to 106).

It said the incumbent party (NDA) at the Centre is likely to retain power despite the projected weakness at the state level, given Prime Minister Narendra Modi's popularity. It sees minimal impact of the I.N.D.I.A alliance; and anticipated a series of populist measures by the Centre in the upcoming Union Budget, given the current environment of populism and possible loss at the state elections.

It would, however, impact fiscal deficit, which is already elevated at 5.9 per cent of GDP in FY24 (budgetary expectation).

"We believe that the BJP's likely losses in the state elections may be sentimentally negative for the market. This is then likely to present a good entry point given the recent market correction, macro risk largely being priced in, corporate earnings season panning out in line with expectations, reasonable valuation, and lower political risk (as the BJP is likely to form the government at the Centre)," it said.

For the upcoming elections, high inflation (in states like Rajasthan and Telangana) and unemployment (especially in Rajasthan) are key voter concerns that may impact poll prospects of the incumbent government, Antique Stock Broking said.

"Chhattisgarh has performed well in terms of both these parameters (likely helping sway consumer sentiment in INC's favour), while in Rajasthan unemployment is a serious concern (however, INC has attempted to counter it with an unemployment guarantee scheme). In Madhya Pradesh, inflation has been recently brought under control, which may allay earlier concerns of high prices," the brokerage said.

Antique Stock Broking noted that state election verdict is not a good barometer of the national election outcomes,  as seen in 1999 and 2019, likely due to differing voter preferences and leadership popularity at the state and national level; and the fact that six months are a sufficient time to sway political preferences. This, it said, was seen during 2018/19 election when BJP loss in states was reversed in Lok Sabha by announcing PM Kisan Samman Nidhi Yojna in 2019 Budget, promising farmers Rs 6,000 per annum as minimum income support.

 

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