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Narendra Modi is due to begin talks to form a government with allied smaller partners a day after election results showed Indian voters delivered his Bharatiya Janata party a weakened mandate, in the prime minister’s biggest political setback in his decade of power.
Stock markets in India rose in early trading on Wednesday after sharply selling off the day before in response to the split election result, which augured a less stable political landscape for the prime minister’s third five-year term.
The Nifty 50 index of India’s top stocks rose as much as 2.6 per cent on Wednesday after suffering a 5.9 per cent drop a day earlier, mirroring a similar rise and fall by the BSE Sensex benchmark index.
Shares of firms owned by the Modi-allied tycoon Gautam Adani also rallied after his two critical companies led losses on Tuesday. Adani Enterprises advanced as much as 4 per cent before falling back to trade flat, while Adani Ports and Special Economic Zone rose as much as 6.5 per cent before paring gains to 2 per cent.
Final results published overnight showed the BJP had lost its majority for the first time since 2014. The ruling party won 240 seats in India’s 543-seat Lok Sabha, or lower house, where it will remain the largest party. The opposition INDIA bloc, led by the formerly ruling Indian National Congress, performed better than expected, winning 234 seats.
Modi said on Tuesday evening that he planned to form a government with smaller parties in his National Democratic Alliance, which won another 53 seats, giving the prime minister’s bloc a potential total of 293 seats.
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The results were an unexpected blow for Modi and the BJP, who in the run-up to the election had targeted as many as 400 seats for the NDA. The BJP also lost ground in some of its traditional strongholds, including India’s most populous state of Uttar Pradesh in the north.
Indian newspapers offered frank assessments of the setback for Modi and the BJP. “India gives NDA third term, Modi a message”, a headline in The Indian Express read. The Telegraph, a daily published in Kolkata in opposition-ruled West Bengal, proclaimed: “India Cuts Modi Down”.
On Wednesday, two important Modi allies from regional parties reaffirmed their backing for the NDA, which was due to meet later om the day for talks on forming a government. “I am firmly with the NDA,” Chandrababu Naidu, leader of the Telugu Desam party in southern Andhra Pradesh state told journalists.
Chirag Paswan, leader of the Lok Janshakti party in the eastern state of Bihar, told reporters the NDA had the “people’s mandate” to form a “stable and strong government” under Modi for another five years.
Representatives of the roughly two dozen parties in the INDIA opposition were also due to meet in New Delhi later on Wednesday to discuss the results and future strategy, Congress president Mallikarjun Kharge wrote in a post on social media platform X.
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Bernstein predicted that the BJP and NDA would likely “go ahead with the rituals of forming a government”, while outlining a “low-probability” prospect in which the opposition could “wrest away the key allies” from the BJP.
Analysts said that Modi’s weaker performance may make it harder to enact bold reforms in areas such as labour and land use that they believe India needs to become a manufacturing powerhouse and lure more investment away from China. But they added it may curtail the BJP’s nationalistic aims and realign the party towards bread-and-butter economic issues.
The results “might persuade Modi’s BJP to focus more on economic reform and job creation” and “soften” their Hindu-majoritarian “ethnic messaging”, said Hasnain Malik, a Dubai-based emerging markets strategist at Tellimer.
Arnab Das, global market strategist at Invesco in London, said there was “still probably a sweet spot for the markets and expectations of reform”, but added that the result “may make it more difficult to free up the labour market and the land market”, which involves implementation by India’s 28 states.
The difficulty for Modi’s incoming government “is going to be how to generate more inclusive growth, how to generate greater employment to take advantage of this demographic dividend”, Das added. “The challenge is how to get there with a reduced majority.”