BJP Maharashtra win may soothe investors but Kotak sees a bumpy ride ahead; here's why

Domestic brokerage firm Kotak Institutional Equities said that voters have voted for continuity and BJP's impressive victory in Maharashtra in the recently concluded assembly elections, following a surprising win in Haryana last month is likely to result in continuity of the central government's development agenda. A loss in Jharkhand will not bother it much.

BJP and its allies won the Maharashtra state elections by an impressive margin, winning 233 out of the 288 seats, significantly ahead of expectations, while losing Jharkhand to the JMM-INC alliance, which won 56 seats in Jharkhand. BJP won only 24 seats in the mineral rich state of eastern India.

BJP registered a remarkable turnaround in state elections in Haryana and Maharashtra, after a weak performance in the same states in the 2024 Lok Sabha elections, said Kotak. "The strong electoral performance of BJP in Maharashtra after its success in Haryana state elections should provide a boost to the central government’s legislative agenda and support policy continuity," it said.

"We expect the central government to continue with its approach of incremental reforms, as the bulk of the heavy lifting has been done already. The focus of the central government is likely to be on ramping up capex, which is running significantly behind FY25BE targets and finishing the plethora of ongoing projects, it said.

Indian benchmark indices opened sharply higher on Monday. NSE's Nifty50 index zoomed more than 444 points, or 1.85, per cent to 24,351.55, while BSE's barometer Sensex rallied more than 1,350 points, or 1.71 per cent to 80,473.08 during the session.

"The strong electoral performance, coupled with the lack of any major state elections in the near term, is likely to rule out any fiscal stimulus from the center. However, while the central fiscal may continue to improve, an increasing shift toward populism in states may gradually weigh on India’s consolidated fiscal deficit," said Kotak.

"We expect Indian equity markets to get a short-term boost in sentiment, which may arrest the ongoing correction in the broader markets. As such, retail flows, which have been the bedrock of post-Covid Indian markets, may continue to remain supportive," Kotak stated. "It will be interesting to see if market activity was to see any meaningful recovery after the recent moderation in trading activity."

Kotak noted that the valuations of the broader Indian market continue to remain at elevated levels, notwithstanding the recent derating in headline indices. Aggregate earnings growth of the Nifty-50 Index remains decent, adjusted for downstream oil companies, it said.

However, the brokerage did not rule out further cuts to earnings estimates given the recent growth challenges, weakening consumption profile, elevated inflation and continued disruption risks. "As such, markets may continue to be tested in the coming weeks, post the likely sentiment-related near-term bump," it added.
 

With ongoing projects worth around Rs 8 lakh crore, there’s plenty of growth potential, particularly in real estate and urban infrastructure, With its ambitious metro network, Mumbai is also a huge catalyst for future investment, said Trivesh D, COO at Tradejini. "However, we should remain cautious about global pressures," he said.
 

"The Indian market is still facing selling pressure from foreign institutional investors (FIIs), who have been exiting the market for nearly 11 months. Additionally, the dollar index is at a high of 106.93, which could signal underlying weakness in the Indian market, especially considering the global sell-off witnessed in October," he added.