Political parties in the fray are not only fighting their rival coalition parties, but are also looking to reassert their authority among partners in their own coalition, Nomura India said. 
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Political parties in the fray are not only fighting their rival coalition parties, but are also looking to reassert their authority among partners in their own coalition, Nomura India said. Nomura India, whose team visited Mumbai and Delhi this past week, met with policymakers, political experts, financial sector participants and corporates. It noted that the current Bharatiya Janata Party (BJP) led government is stable for now, and the ruling party's allies also depend on it to maintain their political stability at states. In the upcoming Maharashtra elections, the contest is highly fragmented and tight, the foreign brokerage said.
Nomura said political parties in the fray are not only fighting their rival coalition parties, but are also looking to reassert their authority among partners in their own coalition. Ahead of the elections, the BSE Sensex was trading at 77,095.72 on Monday, down 484.59 points or 0.62 per cent. Nifty was down 120.20 points or 0.51 per cent at 23,412.50.
"However, the BJP-led ruling coalition seems to have the edge because of the populist measures announced in the run-up to the elections," Nomura India said.
The voters in Maharashtra would cast their ballots on November 20. The counting of votes and results would be declared on November 23.
Nomura said some commentators believe that the increasing popularity of freebies at the state level suggests BJP’s traditional aversion to them is on the decline, and there is a risk that some measures may be adopted by the central government in coming years, albeit this is not a given and needs to be monitored.
Emkay Global in a note earlier on October 30 said the Maharashtra election results would set the tone for national elections and the impact would not just be regional, winner from either side would have an upper hand in national politics and greater confidence going forward to 2029.
"A BJP-led alliance victory would signal policy continuity with emphasis on infrastructure and capex. A Congress-led alliance victory would drive a pivot to rural spending and a possible slowdown of some key infra projects. The fiscal discipline would be to watch out for, given the looming state debt on Maharashtra and two decades of financial indiscipline," it said.
In case of a hung or close assembly, political realignment could be a potential outcome, if there is a hung assembly or the total seats of each alliance is similar, Emkay said earlier.
Nomura India said market participants seem confident that the government is well poised to meet its FY25 fiscal deficit target of 4.9 per cent of GDP, and any capex savings are likely to be balanced out from possible shortfalls in non-tax and net tax revenues.
"This means that there is still a high bar for the borrowing calendar to be tweaked. Fiscal space so far has been expended through tinkering with the treasury bills supply and securities buybacks, which are seen as less disruptive than modifying the borrowing calendar," it said.
Nomura said there is also confidence that the FY26 fiscal deficit target of below 4.5 per cent of GDP will be achieved.
It cited reports suggesting gross borrowing is set to increase in FY26, due to the large redemptions of debt incurred by the government during the pandemic, while net borrowing should remain non-disruptive.
"Further out, investors were focussed on the government’s intention to shift from deficit targeting to debt targeting announced in the budget . The move stems from the need for more pragmatic fiscal management rather than being held hostage to unreasonable, static fiscal deficit targets," it said.
Most participants believe the eventual shift to debt targeting is unlikely to derail fiscal discipline beyond FY26, Nomura said.
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